Debt consolidation is one of the best ways to simplify your debt repayments and secure competitive interest rates if you qualify. If your credit is OK, shopping around for a debt consolidation loan becomes even more important. By finding the best lender for your needs, you can get approved and on your way to zero balance.
Best debt consolidation loans for bad credit
| lender | Ideal for these people | east. April | Loan amount | Loan period | Minutes. credit score |
|---|---|---|---|---|---|
| avant | Consolidate small debts into one | 9.95%-35.99% | $2,000-$35,000 | 24-60 months | 550 |
| best eggs | Direct creditor financing options | 6.99%-35.99% | $2,000-$50,000 | 36-60 months | 600 |
| upstart | Consumers with little credit history | 6.20%～35.99% | $1,000 to $75,000 | 36 months or 60 months | No requirements |
| upgrade | Flexible eligibility requirements | 7.74%-35.99% | $1,000 to $50,000 | 24 months or 84 months | 600 |
| lending club | emergency loan | 6.53%-35.99% | $1,000 to $60,000 | 24 months or 84 months | 600 |
How to get a debt consolidation loan even with bad credit
Lenders base their loan decisions primarily on your credit status. Generally, the lower your credit score, the higher the interest rate lenders will offer you on a loan. FICO defines bad credit as a score of 579 or lower, but many lenders have higher thresholds for bad credit.
1. Check and monitor your credit score
Lenders base their loan decisions primarily on your credit status. Generally, the lower your credit score, the higher the interest rate lenders will offer you on a loan. Many banks offer free tools that allow you to check and monitor your credit score. Once you know your credit score, it will be easier to identify lenders who may be willing to work with you. There are lenders that specialize in bad credit loans, and many have credit score requirements on their websites to help you narrow down your options.
2. Review your financial situation
If your credit score is too low, you may not qualify for a loan, but loan approval also depends on other factors. Perform a financial health check to understand your debt-to-income (DTI) ratio. Creating or reviewing a budget can help guide your DTI in the right direction. Cutting current expenses, paying off other debts, and starting a side hustle are all useful strategies.
There are lenders that specialize in bad credit loans, and many have credit score requirements on their websites to help you narrow down your options. Do your research and compare loan amounts, repayment terms, and fees from multiple sources. Pre-qualify with at least three lenders to see potential interest rates without a hard credit check. This process may take some time, but it could potentially save you hundreds, if not thousands, of dollars.
3. Conduct preliminary screening with multiple financial institutions
With so many lenders out there, it can be difficult to decide where to start. When choosing the right debt consolidation lender, there are several good places to start your search.
4. Consider cosigners, joint loans, and secured loans
To increase your chances of loan approval and getting a lower interest rate, use a co-signer or co-applicant, or shop around for secured personal loans.
- Solidarity financing. Cosigners share legal responsibility for the loan, but not ownership. Having a creditworthy family member or friend sign your loan documents can increase your chances of approval and potentially lower your interest rate.
- Joint financing. A co-applicant (also called a co-borrower or co-applicant) takes on the debt and jointly owns the balance with the primary borrower.
- Secured Loan. These loans require some form of collateral, such as a car, home, or other asset. If you default, the lender will seize the collateral to recover your funds. For this reason, secured loans are usually easier to approve than unsecured loans and may come with more favorable interest rates.
Advantages and disadvantages of debt consolidation loans with bad credit
Where can I get a debt consolidation loan for bad credit?
With so many lenders out there, it can be difficult to decide where to start. When choosing the right debt consolidation lender, there are several good places to start your search.
Credit unions and local banks
If you’re a customer of a local bank or a member of a credit union, you can talk to your loan officer about whether you qualify for a personal loan and, if so, the interest rates and terms. Financial institutions may look beyond your low credit score to consider all of your financial history, personal circumstances, and relationships with you when approving a loan.
online lender
If you have a bad credit score, online lenders are a good place to look for debt consolidation loans. They offer bad credit loans and generally have more flexible eligibility criteria than traditional banks. However, online lenders typically charge higher APRs and origination fees for bad credit debt consolidation loans.
Alternatives to consolidate bad credit debt
If you can’t get a consolidation loan, there are other options. If you haven’t already done so, start by adjusting your budget and spending habits to pay off your debt. Homeowners with equity can see if they qualify for a cash-out refinance or home equity loan to get funds that can be used to pay down debt.
If budget adjustments and alternative methods of generating additional cash aren’t working, it may be time to consider debt consolidation or filing for bankruptcy. You can contact your lender to see if they are willing to negotiate your loan. They may offer you a discount or offer a payment plan if you pay it off in full now. Filing for bankruptcy means going to federal court to have your debts discharged, but it should only be used if you’ve exhausted all other options.
balance transfer credit card
A balance transfer credit card allows you to transfer high-interest debt to a new card with a lower interest rate for a limited time, often with an initial 0% APR. This allows you to pay off your balance faster because more of your payments go toward principal rather than interest.
Most cards have balance transfer fees and promotional rates only last for a certain period of time. If you still have a balance after that, you’ll be subject to a higher interest rate, so it’s important to plan to pay it off before the trial period ends.
credit counseling
Credit counseling is a service that pairs you with a professional who will review your finances and help you create a plan to manage your debt. It can help you budget and understand your credit. We may also recommend a debt management plan that may simplify your payments and lower your interest rate.
Sessions are typically customized based on your income, expenses, and goals, and many nonprofits offer low-cost or free support. The purpose of credit counseling is not only to help you deal with your current debt, but also to help you develop better money habits and avoid financial stress in the future.
401(k) loan
A 401(k) loan allows you to use your retirement savings to pay it back over time, typically within five years. There are no credit checks, and as long as you stick to your repayment schedule, you won’t have to pay taxes or penalties.
Still, it’s not without risks. The money you withdraw will no longer earn you any investment income, and if you quit your job or miss a payment, you could be subject to taxes and penalties on the remaining balance.
Debt reduction or debt consolidation
A debt consolidation plan is when you negotiate with your creditors to pay less than what you owe, often in a lump sum, and have the remainder forgiven. It is typically used for unsecured debts when it is not practical to continue making payments. You can reduce your debt, but it comes with a big trade-off. Debt consolidation is usually considered a last resort because it can damage your credit, there are fees, and there is no guarantee that your creditor will agree to it.
conclusion
It may be difficult to get a consolidation loan with a less-than-stellar credit score, but it’s not impossible. Although certain financial institutions may accommodate borrowers with low credit scores, you can also apply for a traditional personal loan with a cosigner or applicant. Whichever option you choose, make sure the loan is legal. It is not uncommon for predatory high interest loans to be presented as bad credit loans.