Best Debt Consolidation Loans For Bad Credit Of April 2024

• Upgrade – Best Overall Bad Credit Debt Consolidation Loan
• Universal Credit – Best for Comparing Multiple Offers
• Achieve – Best for Paying Off Credit Card Debt
• LendingClub – Best for Peer-To-Peer Lending

Below are three tips that can help you compare bad credit debt consolidation loans and find an offer that may work well for your situation.

• Get multiple quotes. It’s wise to shop around and compare offers from multiple lenders any time you’re searching for financing. Doing so could save you hundreds (maybe even thousands) of dollars on a debt consolidation loan. If you can find lenders that offer personal loan pre-qualification, you won’t risk any potential credit score damage from rate shopping.
• Don’t skip over the fine print. Getting a lower interest rate can be one of your biggest challenges if you’re shopping for a personal loan with bad credit. But many people overlook the fact that loan origination fees can also make borrowing money more expensive. Be sure to review the fine print for any additional fees or costs associated with a potential loan so you can determine whether consolidating your debt with a particular lender makes sense.
• Do the math. If you can qualify for a debt consolidation loan with a lower interest rate than you’re paying on your existing debts, it could make sense to move forward. But it’s important to verify the savings potential before you make anything official. A personal loan calculator can help you compare how much you’re paying on your current debts to the potential costs of a new loan—both on a monthly basis and in terms of overall interest and fees.

• What Is a Debt Consolidation Loan?
• How Does Debt Consolidation Work?
• Pros and Cons of Debt Consolidation
• Where to Get a Debt Consolidation Loan with Bad Credit?
• How to Qualify for a Debt Consolidation Loan with Bad Credit?
• How to Get a Debt Consolidation Loan With Bad Credit
• 3 Alternatives to Debt Consolidation Loans for Bad Credit
• Methodology
• Frequently Asked Questions (FAQs)

A debt consolidation loan is a type of personal loan that can combine several existing debts in a single account. Once consolidated, you’ll have a single monthly payment to a new lender rather than multiple loan and credit card payments as before.

Debt consolidation might also save you money and could be good for your credit score in some situations. With credit card debt, in particular, using an installment loan to pay off revolving balances could lower your credit utilization rate and might improve your credit score as a bonus.

When you take out a debt consolidation loan, you use the new loan to pay off one or more of your existing loans or credit cards. You then only have one payment to manage.

If you can’t make all of your debt payments, a debt consolidation loan can help you get a lower interest rate, making it easier to repay your balance. Along with a potentially lower interest rate, you can also choose a shorter term length, which will help you pay off your debt sooner. Alternatively, you may choose to take out a longer term loan. This makes each monthly payment smaller, but it can increase the total interest you pay over the life of the loan.

When choosing which route to go, it’s always recommended to select terms that you can afford monthly.

Debt consolidation loans aren’t for everyone. Before accepting this financing, consider the pros and cons of debt consolidation:

Pros Of Debt Consolidation

• Simplify your debt. Rather than managing multiple debts, you’ll consolidate your payments into one monthly payment.
• Increase your credit score. Paying off credit card debt with an installment loan can help you increase your credit score, especially if you can avoid racking up a new balance on your credit card.
• Pay off debt sooner. If you get a lower rate and/or a shorter term length, you can pay off your debt ahead of schedule.
• Shrink your debt payments. A lower rate and/or a longer term length can help you shrink your monthly payments to a manageable level.

Cons Of Debt Consolidation

• Can reinforce bad habits. Once you pay off your credit cards, your full credit limit is available to spend again. Some people can’t resist the temptation to keep spending, and in this case, you can end up with twice the amount of debt you had before.
• Lower rates aren’t guaranteed. Interest rates are typically determined by what the lender currently offers and your creditworthiness, so it’s not guaranteed that you’ll get a lower rate on your new loan.
• Can interfere with financing large purchases. Taking on any new debt right before you apply for a big loan, like for a house or a car, can be a red flag to lenders and make it more difficult to get approved for other credit.

Lenders use credit scores to predict risk. Unfortunately, traditional lenders like banks may not be comfortable issuing you a loan to consolidate your debt when you have bad credit. There are, however, some lenders that might work with you even if you have damaged credit.

Related: Debt Consolidation Loan vs. Balance Transfer Credit Card

1. Online Lenders

Online lenders may offer debt consolidation loans with more lenient credit score requirements. However, debt consolidation loans for bad credit tend to feature higher interest rates and sometimes fees to offset the added risk. If the interest rate you qualify for isn’t low enough, debt consolidation might not save you money.

2. Credit Unions

Credit unions are another resource to consider if you want to consolidate debt with a bad credit score. Compared with traditional banks, credit unions are often more willing to approve borrowers with less-than-perfect credit; however, they require membership. Nonetheless, you may have to shop around to find a local credit union or an online credit union that is willing to work with your situation.

Consolidating higher-interest debt at a lower rate can be an effective way to pay off your debt faster and save money on interest. However, finding a personal loan with a lower rate than your current loan can be difficult.

If you’re looking to consolidate credit card debt, you may be able to find a lower APR than what you’re currently paying on your credit card. As of February 2024, the average credit card interest rate was 21.59% APR, according to the Federal Reserve. This rate is similar to what lenders offer personal loan applicants with bad credit.

As you prepare your application, there are ways to improve your chances of qualifying for an affordable debt consolidation loan:

1. Check your budget. Develop a comprehensive budget to determine the maximum monthly payment amount you can afford.
2. Review your credit report. Review your credit report and contact the credit bureaus if there are any errors. Correcting those mistakes can improve your credit.
3. Research different lenders. Research your options and find different lender recommendations for bad credit. Pre-qualifying for a loan can show you the rates and terms you may qualify for without impacting your credit score, and a debt consolidation loan calculator can help you compare costs.

Whether you have bad credit or good credit, the basic loan shopping process is similar to get a consolidation loan.

• Start with a credit review. A lender will most likely review one of your credit reports and credit scores when you apply for a debt consolidation loan. So, you should check your credit from all three credit bureaus—Equifax, Experian and TransUnion—to ensure you meet the credit score requirements for a personal loan.
• Search for lenders that are a good fit. Let’s say your FICO credit score is 580. In this scenario, a lender that requires a credit score of 660 won’t work for you. But a lender with a minimum credit score requirement of 560 could make it onto your list of borrowing possibilities.
• Compare loan options. Some lenders allow you to pre-qualify and discover the personal loan interest rate they might offer you with a soft credit inquiry. Once you find loan options that might work for you, you can compare loans and narrow them down to the best deal.
• Submit an application. The final step to getting a debt consolidation loan is to fill out a lender’s official loan application. Provide the lender with any documents or information it requests right away to avoid potential problems.

A debt consolidation loan for bad credit may not be the best choice for everyone. If your credit prevents you from qualifying for a lower interest rate than you’re paying now, you may want to consider the following alternatives to debt consolidation.

1. Improve Your Credit First

Good credit comes with many perks, including the ability to qualify for better financing. If you’re not in a position to lock in an attractive interest rate on a debt consolidation loan right now, working to improve your credit might give you more options in the future.

When creating your credit improvement plan, remember: You may want to adjust your approach depending on whether you’re building credit from scratch or working to rebuild damaged credit. Either process can take time, but the payoff from earning better credit can make your hard work worthwhile in the long run.

2. Use a Debt Payoff Strategy

If you have some wiggle room in your monthly budget, a debt payoff strategy might work well for you. Do-it-yourself strategies like the debt snowball or debt avalanche method cause you to restructure the way you pay down your debt each month. In the end, each approach has the potential to save you time and money in the debt elimination process.

3. Get Professional Help

Credit card debt and other high-interest debt can sometimes get out of hand. If you’re struggling to keep up with even the minimum payments on your monthly credit obligations, it might be time to talk to a financial professional about your situation.

A nonprofit credit counseling company may have solutions that could help you, including a debt management plan. In extreme cases, you may even want to seek advice from a bankruptcy attorney regarding plans that can provide you with protection from your creditors.

We reviewed 15 popular lenders based on 11 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the best lenders based on the weighting assigned to each category:

• Loan cost: 30%
• Eligibility and accessibility: 25%
• Loan details: 20%
• Direct payment to creditors: 15%
• Customer experience: 10%

Within each category, we also considered several characteristics, including available loan amounts, repayment terms, APR ranges and applicable fees. We also looked at minimum credit score requirements, whether each lender accepts co-signers or joint applications and the geographic availability of the lender. Finally, we evaluated the availability of each provider’s customer support team.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

To learn more about how Forbes Advisor rates lenders, and our editorial process, check out our Loans Rating & Review Methodology.