Take control of your finances and consolidate your debt, even if you have bad credit.
Debt consolidation is one way to manage payments and reduce debt if you have more than one account you’re paying interest on. While many lenders require you to have a good credit history to take out one of these loans, there are lenders out there who will approve borrowers with poor credit.
Our top pick: Even Financial Personal Loans
Our top pick: Even Financial Personal Loans
Compare debt consolidation loans for bad credit
What is a debt consolidation loan for bad credit?
Some specialist lenders offer large, unsecured personal loans to people with poor credit scores. Interest rates are higher than with standard loans, but you may still be able to reduce what you’re currently paying. Debt consolidation involves bringing separate debt balances together into one loan.
You can generally consolidate personal loan, car loan or credit card debt. The lender may repay the debt on your behalf or you may be required to use your debt consolidation loan funds to pay out your existing loans and close the accounts.
How to compare bad credit debt consolidation loans
Like any debt or loan solution, it’s important to compare your options to find the best option for you. Here are some things to keep in mind when comparing bad credit debt consolidation loans:
- The lender. Unfortunately, there are disreputable lenders who prey on those with bad credit, promising fair loans but then charging high rates and fees. Before you apply for a loan with a lender you should take a look at their website and see how easy it is to locate information, if they are easily contactable, and what previous customers have to say.
- Fees. One way to find out if the fee structure is fair is to compare your options online and see what other lenders are charging. Some fees you might expect to pay include loan establishment fees, monthly account maintenance fees, additional payment fees, and so on.
- Rates. The point of a debt consolidation loan is to save you money from reduced interest across your credit accounts, so if the rate charged is too high then you may not be saving much money. Again, compare your options to see what a reasonable interest rate is.
- Loan terms. Terms offered by the lender should meet your debt-consolidating needs. These include how much your monthly payments will be and how much interest you’re paying over the course of the loan.
- What you’re able to consolidate. This may differ between lenders, so you might want to check this before you apply. Some lenders allow you to consolidate any debts from your open accounts, but they may have limits. Other lenders may only allow you to consolidate credit card debt or only personal loan debt. Make sure you’ll be able to consolidate what you need to when you compare your options.
Exploring your options? See how a debt consolidation loan compares to debt relief
Can I get a debt consolidation loan if I have bad credit?
Yes, many borrowers with a poor credit history can still qualify for a debt consolidation loan. However, you’re likely to have fewer lenders to choose from and higher interest rates.
What’s the lowest score I can qualify with?
Some lenders, like Monevo and Even Finanacial, will accept credit scores as low as 550. If you have a credit score below 550, a debt consolidation loan will likely not be an option. And if you have a credit score above the minimum, that doesn’t mean you’ll automatically be accepted.
3 tips to increase chances of approval
To increase the likelihood of being approved:
- Get a secured loan. You’re more likely to approved for a secured loan, which requires collateral. A car is the most common form of collateral.
- Don’t apply for every loan. Each time you apply, the lender will do hard check on your credit file, which will cause your score to drop by a few points. Do your research up front, and then only apply to one lender. If your application is denied, wait a month or two before applying to another lender.
- Consider credit repair. Errors and delinquent accounts could be hurting your credit. Using a credit repair service or working independently to correct errors can help bump your score back up.
What are the benefits of consolidating debt?
There are various advantages to consolidating your debt, including:
- Pay a single monthly payments. By consolidating your debts you’ll only have to worry about one monthly payment as opposed to several, so your debt is easier to keep track of and you’re less likely to miss a payment.
- Reduce interest. By consolidating your debt you might be able to reduce the interest you’re paying if your debt consolidation loan has a lower rate than some of your existing accounts.
- Save money. Most loans and credit cards come with fees, so by consolidating your debts into one loan you can save money from not paying separate fees.
- Get in a better financial position. By consolidating your debts and having more control over your repayments you can help get yourself into a better financial position so you can start working on repairing your credit.
How to make a debt consolidation loan work for you
Not everyone who takes out one of these loans improves their financial situation. It’s important to go about these loans the right way and make sure you don’t make your debt even worse:
- Lower your interest. One of the main points of these loans is to take advantage of an overall lower rate of interest across your loans. Make sure you do your calculations and work out if you’re actually saving money on your new loan’s interest rate.
- Budget. Before you take on a new loan it’s important to budget for the payments. You’ll notice a significant change in your finances when you make a payment as you’ll be paying for one big loan rather than several little ones, so it will take some adjusting.
- 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 lowest rate and fees available to you.
- Seek advice. If you’re struggling to consolidate your debts or are wondering how best to manage your payments, you can seek financial advice to help improve your financial situation. This will help ensure you repay your debts and improve your credit situation.
- Don’t take on new debt. Avoid the temptation to use your credit cards or take on any new lines of credit or loans until you’ve completely paid off your debt consolidation loan. And 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 consider
If you’re not sure a debt consolidation 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.
- Home equity loan. If you’ve built up equity in your home, you can borrow against it and use the money to pay off your current debts. This can save you money on interest.
- 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. However, these are harder to get if you have a poor credit score.
- Debt relief. If you have more debt than you can afford to pay no matter what the interest rate is, consider using a debt relief company to help you negotiate with your creditors.
- Bankruptcy. As a last resort, if you have more debt than you can afford to pay, talk to a lawyer or financial adviser about filing for bankruptcy.
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 you take out one of these loans you should figure out how much money you’ll save on interest and fees, including any early repayment fees for your existing loans, to find out if consolidating your debt is the best choice for you.
Frequently asked questions
Picture: Shutterstock
