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Debt consolidation loans for bad credit in Canada

Compare your options and find out if getting a debt consolidation loan for bad credit is right for you.

A debt consolidation loan might be a great option to help take control of your debt if your credit score is bad. There are lenders who will be willing to work with you, provided you have a steady income and meet basic lending requirements.

What is a debt consolidation loan for bad credit?

A debt consolidation loan for bad credit is a loan, specifically geared towards people with bad credit scores, that you can use to pay off multiple smaller debts. A credit score is often considered “bad” if it falls within the poor credit (300-559) or fair credit (560-659) ranges. Thankfully, debt consolidation loans for bad credit typically have minimum credit score requirements that start below 600 to as low as 300.

The interest rates of debt consolidation loans for bad credit are higher than those of standard debt consolidation loans, but you may still be able to reduce what you’re currently paying.

Compare debt consolidation loans for bad credit in Canada

1 - 3 of 3
Name Product Interest Rate Loan Amount Loan Term Requirements Link
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Requirements: min. income $13,000/year, min. credit score 500
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Loans Canada Debt Consolidation Loan
5.4% - 46.96%
$300 - $50,000
4 - 60 months
Requirements: min. credit score 300
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LoanConnect Debt Consolidation Loan
5.99% - 46.96%
$500 - $35,000
12 - 60 months
Requirements: min. credit score 300
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More Info
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How do debt consolidation loans work?

Debt consolidation loans generally offer lower interest rates than your current debts so you can put more money towards the principal loan amount. They also sometimes come with a longer loan term, giving you smaller, more manageable monthly payments. You can consolidate common debts like personal loans and credit card debt. The lender may repay the debt on your behalf, or you may have to while closing the accounts yourself.

What is the minimum credit score for debt consolidation loans?

It will be hard to qualify for a typical debt consolidation loan with a credit score below 600-650. However, some debt consolidation loan lenders that specialize in working with bad credit borrowers, have official minimum credit score requirements of 300-550. So it’s worth doing some research to find those types of companies. To help you out, we’ve curated a list of bad credit debt consolidation loan companies above so you can easily compare your options.

Some lenders will accept low credit scores as long as you have a regular income or meet other eligibility requirements.

Where to get debt consolidation loans for bad credit

If you’re wondering where you can get a debt consolidation loan if you have bad credit, don’t worry, there are several options out there.

Banks and credit unions

If you have a longstanding relationship with your bank or credit union, it’s worth inquiring first with it to see what bad credit debt consolidation loan options might be available to you. While these types of financial institutions tend to have more strict eligibility requirements, it’s still worth a shot to give it a call and see what it could offer.

Be aware that in order to give you an estimate of your options, they might run a hard credit check. Doing that could negatively impact your credit score even more. So make sure you’re clear on how the bank or credit union is assessing your eligibility before giving it permission to move forward.

Online lenders

There are many debt consolidation loan lenders operating in the online space that cater to bad credit borrowers. These lenders allow you to complete the full process entirely online – from the application to approval and loan fund disbursement.

The important thing to keep in mind when choosing an online lender is to look out for scam and predatory lenders. Before applying to a lender, look up the company on sites like Trustpilot and the Better Business Bureau to see customer reviews. You can also browse through our curated list of legit, reputable online lenders in the table above.

Compare consolidation loans for bad credit

Is debt consolidation for bad credit right for me?

That depends on your specific financial situation. Since the goal of debt consolidation is to save money and pay down your debt more efficiently, it’s important to make sure that any consolidation loan you’re approved for will actually help you save. Don’t just assume that you’ll save money just because a loan is labeled “debt consolidation.” Bad credit loans especially tend to come with higher interest rates, that can easily be higher than the interest rates you’re already paying on your current debts.

What to consider about debt consolidation loans for bad credit

Let’s say you want to consolidate credit card debt. Since credit cards typically have interest rates at around 20%, you generally will want to make sure the interest on any consolidation loan you get is lower than that. Unfortunately, interest rates on debt consolidations loans for bad credit borrowers can easily range around 37% or more. If that’s the case for you, you could end up paying more for debt consolidation than if you just continued paying on your credit cards.

Alternatively, it may be worth getting a debt consolidation loan with a higher interest rate than your current debts if you’re having a very hard time managing the monthly payments on your current debts. That only makes sense though if it means spreading out the repayment term and lowering your monthly payment. But be careful that this doesn’t lead to a cycle of debt.

Calculate how much a debt consolidation loan could cost

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Tips to increase your chances of approval on bad credit debt consolidation loans

  1. Get a secured loan. You have a higher chance of approval with a secured loan, which requires collateral. Home equity and vehicles are the most common forms of collateral.
  2. Don’t apply for too many loans. Each time you apply, the lender will do hard check on your credit, which will cause your score to temporarily drop by a few points. Such inquiries may stay on your credit report for up to 36 months but typically won’t affect your score after 12 months. Try not to apply to multiple lenders in a short time span. If your personal loan application is denied, wait as long as possible before applying to another lender.
  3. Apply with a co-signer. Having a friend or relative with good credit back your loan makes you less of a risk to lenders and could get you a better deal. Learn more about cosigned personal loans.
  4. Work on rebuilding your credit. Errors and delinquent accounts could be hurting your credit. Using a credit repair service or working independently to correct errors on your credit file can help bump your score back up.

How to compare debt consolidation loans for bad credit in Canada

Like any debt or loan solution, it’s important to compare your options to find the consolidation loan for you. When you’re comparing your options, keep in mind the following:

  • The lender. There are disreputable lenders who prey on those with bad credit, promising fair loans but then charging unreasonably high rates and fees. Verify that a lender is legitimate by checking out reviews from other customers and looking up ratings on sites like the Better Business Bureau and Trustpilot. You can also apply directly with legit lenders using our curated list above.
  • Fees. See what lenders are charging, and check your lender’s fine print to make sure there are no hidden costs. Some fees you might encounter include origination fees, NSF fees, late payment fees and prepayment penalties.
  • Interest rates. The point of a debt consolidation loan is to reduce your interest rate across multiple credit accounts, so if your new lender’s loan consolidation rate is too high, then it may not make sense to take out the loan.
  • Loan terms. Calculate how much your monthly payments will be and how much interest you’ll pay over the course of the loan. Generally, the longer the loan term, the more you’ll pay in interest. Try to find a term that strikes a reasonable balance between what you can afford each month and not taking too long to pay off the loan.
  • What types of debt you can consolidate. Some lenders may limit the types of debt that the loan can be used to consolidate, while others don’t restrict you at all.

Debt consolidation loans vs. balance transfer credit cards

How does debt consolidation affect your credit score?

If you already have bad credit, consider how debt consolidation loan could further impact your credit score. Depending on which type of debt consolidation option you choose, consolidating your debt can affect your credit score in these 2 ways:

  1. Your credit score can go down. Your credit score can go down even more when you initially sign up for debt consolidation. That’s mostly because creditors do a hard pull on your credit to check your eligibility, and because you take on new “immature” debt once you’re approved. Once you start making payments on a consistent basis, you should see your score start to climb.
  2. Your credit score can go up. Your credit score will typically start to go up after a few months or years of making on-time and consistent payments. Just be aware that you’ll lose any progress you make on your credit score if you fall behind on your repayments.

How debt consolidation affects your credit score

What are the benefits of consolidating debt if you have bad credit?

There are various advantages to consolidating your debt when you have bad credit, including:

  • Paying a single monthly payment. By consolidating your debts you’ll only have to worry about 1 monthly payment as opposed to several, so your debt is easier to budget for, and you’re less likely to miss a payment.
  • Reducing your interest. By consolidating your debt, you might be able to reduce the interest rate you’re paying across multiple credit lines.
  • Saving money. Most loans and credit cards come with fees, so you can avoid paying multiple fees by consolidating your debts into a single loan.
  • Improving your financial position. By consolidating your debts and having more control over your repayments, you can get yourself into a better financial position to start working on repairing your credit.

How to make a debt consolidation loan for bad credit work for you

Not everyone who takes out a debt consolidation loan for bad credit improves their financial situation. It’s important to use these loans the right way, so you don’t increase your debt even more:

  • Get a lower interest rate. Getting an overall lower interest rate on your debt can save you a lot of money. Make sure you calculate your payments both with and without the consolidation loan to verify that you’re actually saving money with your new loan’s interest rate.
  • Budget. You’re budget will change as you’ll be paying for one big loan rather than several little ones. Make sure you know when your payment is due and pay it on time. Consolidating your debt won’t help your credit very much if your score dips because you miss payments.
  • Compare your loan options. To make sure you’re getting the best deal, compare your loan options before you apply. This will help ensure you get the option with the lowest rate and the least fees.
  • Seek advice. If you’re struggling to consolidate your debts or are wondering how best to manage your payments, seek advice from a financial advisor or debt counselor who can point out all your options and answer any questions you may have.
  • Don’t take on new debt. Avoid the temptation to take on any new credit card, line of credit or types of debt until you’ve completely paid off your debt consolidation loan. Once it’s paid off, be mindful of how much debt you’re taking on to avoid ending up in the same situation again.

Alternatives to debt consolidation for bad credit

If you’re not sure getting a debt consolidation loan for bad credit is the best option for you, there are other alternatives to help you get out of debt.

Snowball debt management plan

If a new loan seems like too drastic of an option but you need help getting in control of your finances, consider using the snowball method. Pay off your smallest debt first, then roll the payments you were making on that debt into your next smallest debt. As you keep paying off debt, your payments will get larger and larger and you’ll be able to pay off all your loans faster.

Home equity line of credit (HELOC)

If you’ve built up equity in your home, you can borrow against it and use the money to pay off your current debts, which could save you money on interest. A HELOC is a line of credit secured by your home. It allows you to borrow an amount worth up to 65% of your home’s value. You only pay interest on the amount you actually borrow, and because your property acts as collateral for the line of credit, you’ll usually get lower interest rates.

Balance transfer credit card

If you plan to pay off your debt within the next year, a balance transfer credit card might be a better option. With this method, you can move balances from multiple credit cards onto 1 new card with a low introductory interest rate that typically is in place for anywhere between 6 to 10 months. However, these are harder to qualify for if you have a poor credit score.

Debt consolidation program

If you have more debt than you can afford to pay no matter what the interest rate is, consider using a debt relief company, especially if you don’t qualify for a bad credit debt consolidation loan or a balance transfer credit card . These agencies negotiate with your creditors to lower your interest rates or monthly payments. You agree to begin paying off your debts through the agency in one or more affordable monthly payments — usually over 3 to 5 years — while the agency pays your creditors on your behalf.

See if a debt relief company is right for you

1 - 1 of 1
Name Product Costs Requirements
Debt.ca
Varies (depends on the company you're connected with)
At least $10,000 in unsecured debt, a hardship that is preventing you from paying your creditors
A nationwide service that can help you find a solution to reduce your debt payments by up to 50%. Request a free consultation with a trained debt relief specialist.
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How to rebuild your credit

You don’t have to be stuck with bad credit. You can be strategic about rebuilding your credit score by consolidating your debt, making sure to pay your bills on time and using credit building services.

Another option is getting a credit builder loan – a special type of loan designed to rebuild your credit. These loans are unique because you don’t actually have access to the money until you pay off the loan in full, but in the meantime your lender reports your on-time payments to the credit bureaus. This will help ensure that every payment gets logged and your credit score goes up faster than it would if you just had a regular loan.

Bottom line

While a debt consolidation loan is often a viable option to consider if you’re trying to get a handle on your debt, the same solution won’t work for everyone. Before taking out one of these loans, make sure you’ll actually be saving on interest and fees by calculating your monthly payments as well as the total cost of your loan. Speak to a financial advisor or debt counselor about other options that may be open to you.

Take a look at our guide to debt consolidation to learn more, so you can decide if this is the right choice for you.

Frequently asked questions about debt consolidation loans for bad credit

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