How to get a debt consolidation loan for bad credit

A debt consolidation loan may make it easier to pay off your debts, even if you have bad credit

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If your credit isn’t great and you’re struggling to make your debt payments, a debt consolidation loan for bad credit may help. Learn how to qualify.  (iStock)

If you’re struggling to pay off multiple debts, a debt consolidation loan may be able to help by rolling all your debts into a single loan, streamlining repayment, and often reducing your interest costs.

A low credit score shouldn’t preclude you, either. You can find debt consolidation loans for bad credit, though you may pay a higher rate than borrowers with higher credit scores.

Here’s how to get a debt consolidation loan for bad credit — and some other debt payoff options you might consider.

If you’re looking for a loan to consolidate debt, visit Credible to see your prequalified personal loan rates.

1. Check your credit 

You should always check your credit before applying for any loan. Not only will your credit history and credit score affect your ability to get a debt consolidation loan, but they’ll also influence the interest rate and loan terms a lender offers you. 

You may be able to pull your credit report online for free through your bank or credit union. Some credit card issuers also offer free credit-score monitoring. If this isn’t the case with your bank or credit card company, you can visit to request free copies of your reports from each of the three main credit bureaus — Equifax, Experian, and TransUnion.

Once you have your report, go through it line by line. If you spot any errors — things like accounts you don't recognize, incorrectly reported late payments, or unrecognized debts in collections — alert the bureau you pulled the report from. Getting these issues corrected could improve your credit score and help you secure a lower rate on a loan.

2. Improve your debt-to-income ratio 

Your debt-to-income ratio — or how much of your monthly take-home pay goes toward your credit cards, loan payments, mortgage, and other debts — also influences your loan options and interest rate. 

To improve your chances of getting a loan with an affordable interest rate, take steps to improve your DTI ratio before you apply. Paying down some of your debts is a good place to start, or you might ask your boss for a raise to increase your income. Taking on a side gig or more hours at work can also help you pay down some of your debt sooner.

Consider adding a cosigner

You can also consider adding a cosigner to your loan. As long as they have good credit, it could help you qualify for a loan (and potentially get better rates, too). Just make sure your cosigner understands the obligations that come with cosigning a loan: If you fail to make your payments, they’ll be responsible for making them instead. If they don’t make the loan payments, it could hurt both your credit scores or result in collections attempts. 

3. Compare debt consolidation loan rates

Comparing interest rates is critical when getting a debt consolidation loan, as it directly affects both your monthly payment amount and the long-term costs of the loan.

Lenders can vary quite a bit on the interest rates they offer, so make sure to consider at least a few different companies for your debt consolidation loan. The lower your interest rate is, the more money you’ll save in the long run — and the lower your monthly payments may be. 

Credible lets you compare personal loan rates from various lenders, and it won’t affect your credit score.

Benefits of a debt consolidation loan

A debt consolidation loan, sometimes called a credit card consolidation loan, can offer many benefits: 

  • Streamlines the repayment process — Rather than making several payments toward your debts each month, you’ll make only one. This could make it easier to budget and plan for expenses.
  • Reduces your costs — A debt consolidation loan often comes with a lower interest rate than some other types of debts, like credit cards, which saves you money monthly and in the long term.
  • Can improve your credit — Since you’ll use a debt consolidation loan to pay off several debts at once, it may improve your credit score at the outset. And with only one monthly payment to keep track of, it can also help you avoid making late payments in the future, which helps your score as well.

How to qualify for a debt consolidation loan

Each lender has its own requirements for a debt consolidation loan, but here are the factors that typically come into play when evaluating your loan application:

  • Credit score — Most lenders want to see a minimum credit score of 580 to 650 to qualify you for a loan. Some lenders have no credit score requirements, but they’ll likely charge a higher interest rate for someone with a low credit score. 
  • Debt-to-income ratio — You’ll typically need a DTI ratio of 43% or less to qualify for a loan, though some lenders allow for up to 50%.
  • Income — You’ll most likely need to provide proof of employment when you apply for a loan. Lenders want to see that you have a stable income and employment to show that you’re able to repay your loan. You may need to provide documentation, such as pay stubs, W-2s, or bank statements.

If you don’t meet all the above requirements, make sure to contact several lenders and shop around. Since lender requirements vary so widely, you may still be able to qualify for a debt consolidation loan with bad credit.

You can use Credible to compare personal loan rates from various lenders in minutes.

Alternatives to debt consolidation loans for bad credit

Debt consolidation loans aren’t your only option if you want to pay off your debts more efficiently. If you’re unable to qualify for one or can’t get an affordable rate, consider these alternatives: 

Home equity loan or home equity line of credit (HELOC)

If you’re a homeowner, you may be able to tap your home equity to pay off your debts using a home equity loan or home equity line of credit (HELOC). The big benefit here is that home equity loans — and most mortgages for that matter — tend to have much lower interest rates than other financial products, including credit cards and personal loans. HELOCs also have relatively low interest rates, but they function more like a credit card — you get a revolving line of credit that you can use as needed.

These financial products come with risks, though. For one, they use your home as collateral, so if you fail to repay the loan, you could put your home at risk of foreclosure. Additionally, if your home loses value, you could end up owing more on your loan than the property is worth. This is called being upside down on your mortgage.

Sign up for a debt management plan

A debt management plan, or DMP, is another option to consider. You can find these through credit counseling agencies and debt relief companies. 

With a debt management plan, you’ll make a single payment to the debt relief company each month, and then the credit counselor or debt relief professional pays your individual creditors on your behalf. DMPs can sometimes reduce your interest rate and help you pay off your debts faster.

To learn more about DMPs, contact a debt relief or credit counseling company in your area. The National Foundation for Credit Counseling is a good place to start if you're looking for free, nonprofit resources.

Debt settlement

Debt settlement is when a creditor (your credit card company, for example) agrees to let you pay off your debt in full but for less than the balance you actually owe. To do this, you typically need to negotiate with your creditor directly or go through a debt relief company, which will negotiate on your behalf.

Though debt settlement has its perks (you pay off your debt for less than you owe), it can also have some drawbacks.You may have to pay hefty fees if you go through a debt settlement company. On top of this, it can also hurt your credit score, which can limit your financial options in the future.


As a last resort, you can also consider filing for bankruptcy, which could wipe many of your debts clean. But keep in mind: You could also lose assets in the process, like your car. 

Bankruptcy will remain on your credit report for seven to 10 years, depending on which type you file for. This blemish could hurt your ability to get a loan or even secure an apartment for many years to come. For these reasons, you should only consider bankruptcy as an absolute last resort.

If you’re considering bankruptcy, talk to a financial advisor or seek the guidance of a bankruptcy attorney. They can help you make the best decision for your finances — both now and for the long run.

A debt consolidation loan is the first step 

Getting a debt consolidation loan might help you tackle your debts — often more affordably and efficiently — but you’ll also need to get to the root of the problem and determine what caused your credit card debt in the first place. 

If you need help creating a budget or learning how to better control your spending, talk to a credit counselor. You can also enlist a financial planner to help you manage your finances or achieve your saving and investment goals.