10 Best Debt Consolidation Loans for Bad Credit in April 2024
Updated March 29, 2024 at 1:02 pm
Managing several loans and monthly payments can be challenging. Debt consolidation loans can combine your debt payments into one loan with a single interest rate so you only have one monthly payment to make.
Debt consolidation loans can help you save money if you qualify for a lower interest rate. Or they can help make monthly payments more manageable if you need more time to pay off your debt.
As with any loan, your credit score and financial situation are factored into the lender’s decision. If you’re struggling to make debt payments or are simply looking to save on interest, you can still consolidate debt even if you have a lower credit score. Here are our picks for the best debt consolidation loans for bad credit and some tips on how to choose the right lender when you have less-than-stellar credit.
Our Methodology Newsweek Vault’s loan experts evaluated multiple data points to help our readers make sense of their borrowing options across student loans and personal loans. To narrow down the best available offers, we weigh the product pros and cons across five core categories, including:
•Application process
•Eligibility requirements
•Interest rates
•Loan amounts (minimum and maximum)
•Repayment flexibility
Our Picks - Best for a Low Credit Score: Upstart
- Best for Joint Applicants: Prosper
- Best for an Autopay Discount: Upgrade
- Best for Credit Card Debt: Avant
- Best for Low Interest: Happy Money
- Best for Small Loan Amounts: OneMain Financial
- Best for Fast Funding: Best Egg
- Best for Interest Rate Discounts: Achieve
- Best for Fair Credit: LendingClub
- Best for Reducing Your Interest Rate: LendingPoint
Best Debt Consolidation Loans for Bad Credit of 2024
Best for Low Credit Score
Upstart
on Credible’s website
Why we chose it
Upstart works with several lenders to match you with the best debt consolidation loan for your situation. Upstart’s lender network also looks at other requirements in addition to your credit score such as your income and employment and credit history. Plus, you can check your rate online in minutes if you’re shopping around. Read our Upstart personal loans review.
Pros
- Low starting interest rate
- No prepayment fees
- Less paperwork and faster approval
Cons
- Potentially high origination fee
- Not available in all states
- No joint applications
Additional Information
- Fees:
- Origination fee: 0% to 12%
- Late fee: $15 or 5% (whichever is greater)
- No prepayment penalties
- Repayment schedule: 3 to 5 years
- Funding speed: 1 business day
- Loan availability: Available in every state and Washington, D.C.
Best for Joint Applicants
Prosper
Vault Verified
Why we chose it
Prosper has a low starting rate for loans and you can change your payment due date at any time if you’re looking to make your payment schedule more flexible. Loans can also be funded quickly and you just need a 640 credit score to qualify making this loan accessible to people with fair or average credit. Read our Prosper personal loans review.
Pros
- Quick funding
- Joint accounts allowed
- Accessible to borrowers with fair credit
- Change your monthly due date.
- 15-day monthly payment grace period
Cons
- Origination fee
- High maximum APR
- Not available in Iowa and West Virginia
Additional Information
- Fees:
- Origination fee: 1% to 7.99%
- Late fee: $15 (15-day grace period)
- Returned payment fee: $15
- Repayment schedule: 2 to 5 years
- Funding speed: 1 business day
- Loan availability: All states except Iowa and West Virginia
Best for an Autopay Discount
Upgrade
on Credible’s website
Why we chose it
Upgrade is available in all 50 states and allows you to borrow up to $50,000 to consolidate your debt. While there is an origination fee, you can review multiple loan offers in one place and you may receive a discount for setting up autopay. Read our Upgrade personal loans review.
Pros
- Accepts lower credit scores
- Check your rate online
- Fast funding
Cons
- Potential for high origination fee
- Limited repayment term options
- Higher minimum APR
Additional Information
- Fees:
- Origination fee: 1.85% to 9.99%
- Late fee: Up to $10
- Repayment schedule: 3 to 5 years
- Funding speed: 1 business day
- Loan availability: All 50 states and Washington, D.C.
Best for Credit Card Debt
Avant
on Credible’s website
Why we chose it
Avant accepts credit scores as low as 580 and is available in all 50 states. While interest rates start a little higher than some other lenders, this may be a promising option if you have bad credit and need funding fast. Read our Avant personal loans review.
Pros
- Flexible repayment options
- Available in all 50 states
- 10-day grace period before late fee
Cons
- Administration fee
- Higher minimum APR
- No direct payment to creditors
Additional Information
- Fees: Administrative fee: Up to 4.75%
- Repayment schedule: 1 to 5 years
- Funding speed: 1 business day
- Loan availability: All 50 states
Best for Low Interest
Happy Money
on Credible’s website
Why we chose it
Happy Money provides debt consolidation loans in most states and offers lower maximum interest rates to help you save money on loan costs even with a lower credit score. This lender also makes it easy to get prequalified and check your rate online without impacting your credit score. Read our Happy Money personal loans review.
Pros
- Lower maximum interest rate
- No hidden fees
- Check your rate online
Cons
- Longer loan funding time
- Origination fee
- Loans not offered in Massachusetts or Nevada
Additional Information
- Fees: Origination fee: 1.5% to 5.5%
- Repayment schedule: 2 to 5 years
- Funding speed: Three to seven business days
- Loan availability: 48 states
Best for Small Loan Amounts
OneMain Financial
on Credible’s website
Why we chose it
OneMain Financial is best for someone who’s looking to borrow a smaller loan amount and prefers to receive funds as soon as possible. This lender also has physical branches across the country if you’d rather handle your application in person and requirements tend to be more lenient overall. Read our OneMain Financial personal loans review.
Pros
- Secured and unsecured loan options
- Fast funding with a bank-issued debit card
- No prepayment fees
Cons
- Origination fee
- Loans not available in every state
- Higher interest rates
Additional Information
- Fees:
- Origination fee: 1% to 10%
- Late payment fees: $5 to $30
- Returned payment fee: $10 to $50
- Governmental fees: Varies
- Repayment schedule: 1 to 5 years
- Funding speed:
- 1 hour with bank-issued debit card
- 1 to 2 days with electronic deposit to borrower’s bank
- 1 to 2 days by check
- Loan availability: 44 states
Best for Fast Funding
Best Egg
on Credible’s website
Why we chose it
Best Egg is a lender that looks at more than just your credit score when you apply for a debt consolidation loan. You can prequalify easily online, and Best Egg offers a secured loan for homeowners that can make it easier to qualify using attached fixtures as collateral. You can also pay your creditors directly with your loan funds. Read our Best Egg personal loans review.
Pros
- Fast funding
- Check your rate with no impact to your credit score
- Pay your creditors directly
Cons
- Potential for high origination fee
- Not available in every state
Additional Information
- Fees: Origination fees of 0.99% to 8.99%; minimum 4.99% origination fee on loan terms of 48 months or longer
- Repayment schedule: 3 to 5 years
- Funding speed: 1 business day
- Loan availability: Not available in Iowa, Vermont, West Virginia, Washington, D.C., or U.S. Territories
Best for Interest Rate Discounts
Achieve
Vault Verified
Why we chose it
Achieve has a minimum credit score requirement of 620 and offers same-day funding if all required documents are submitted early in the business day. There are also multiple ways to get an interest rate discount including when you use a co-borrower, show proof of sufficient retirement funds, and allow Achieve to directly pay your creditors with your loan funds.
Pros
- Choose your monthly payment date
- Same-day funding available
- Several ways to get an interest rate discount
Cons
- Not available in all states
- Loan origination fee
- Funding can take up to 72 hours
Additional Information
- Fees: Origination fee: 1.99% to 6.99%
- Repayment schedule: 2 to 5 years
- Funding speed: Same day
- Loan availability: Not available in CO, CT, HI, KS, ME, ND, VT, WV, WI and WY.
Best for Fair Credit
LendingClub
on Credible’s website
Why we chose it
LendingClub allows you to check your loan interest rate online with a soft credit pull and use a co-signer which can help improve your loan terms if the co-signer has a good credit score. LendingClub’s loan approval time is also fast, and some applicants can get approved within a few hours if they submit all the necessary documentation. Read our LendingClub personal loans review.
Pros
- Check your rate online
- Available in all 50 states
- Co-signer allowed
Cons
- High minimum APR
- Loan origination fees
- No interest rate discounts
Additional Information
- Fees: Origination fee: 3% to 8%
- Repayment schedule: 2 to 5 years
- Funding speed: A week or more
- Loan availability: All 50 states and Washington, D.C.
Best for Reducing Your Interest Rate
LendingPoint
Vault Verified
Why we chose it
LendingPoint looks beyond credit score to determine eligibility. It provides several loan options once you get preapproved and has a flexible repayment schedule up to six years. This lender also offers the unique opportunity to reduce your interest rate after six months. Otherwise, interest rates are fixed. Read our LendingPoint personal loans review.
Pros
- Provides multiple loan offers
- No prepayment penalties
- Potential to decrease your interest rate after six months
Cons
- Not available in Nevada and West Virginia
- No co-signers allowed
- May pay an origination fee depending on your state
Additional Information
- Fees: Origination fees: Up to 10%
- Repayment schedule: 2 to 6 years
- Funding speed: 1 business day
- Loan availability: Every state except Nevada and West Virginia
What Is a Debt Consolidation Loan?
Debt consolidation involves taking out a new loan to pay off existing debts. It’s often sought after as a way to streamline multiple debts into a single payment, ideally at a lower interest rate. This not only simplifies the repayment process but can also reduce the overall interest to be paid and potentially lower monthly payments. Debt consolidation loans are offered by banks, credit unions, and private lenders.
If you are looking for debt consolidation loans for bad credit, you may find more success by comparing online lenders. Some online lenders cater to borrowers with bad credit or accept lower credit scores and place more weight on other factors like your income and debt-to-income ratio when considering you for a loan. Shopping around for bad credit consolidation loans will help you compare rates and terms to narrow down the best loan option for your needs.
How Do Debt Consolidation Loans Work?
A debt consolidation loan works by combining multiple debts into one new loan. This new loan is then used to pay off the balances on existing debts. Sometimes the lender will pay off your debt balances directly or provide you with the loan funds so you can pay off your balances. The result is a single monthly payment, often with a lower interest rate, lower monthly payment, or both.
A debt consolidation loan doesn’t eliminate the debt, but it transforms the structure of what you owe, making it more manageable. In order to qualify for a debt consolidation loan, you will need to meet certain income and credit score requirements which will vary by lender. Some lenders like to see that you’re currently in good standing with your creditors and making minimum payments on time each month.
Why Would You Need a Debt Consolidation Loan?
A debt consolidation loan may not be the best option for everyone since there are certain benefits and drawbacks to consider. Debt consolidation can help you streamline the debt repayment process but it can also come with added costs like an origination fee which could be hundreds of dollars depending on your loan amount.
To determine whether debt consolidation loans are a good option, it’s best to consider your unique situation and goals. Below are five reasons that may resonate with you when it comes to deciding on a debt consolidation loan.
- High interest debt. If you have multiple loans or credit cards with high interest rates, this can make it harder to pay your balances down. Sometimes, a debt consolidation loan presents a lower, more competitive interest rate which can help you save on your total loan costs.
- High debt balance. Debt is so accessible today that it’s easy to accumulate a large balance, especially if you have credit cards. Debt consolidation loans are a good option for high balances because you can typically borrow up to $40,000 or $50,000. If you have a smaller credit card balance, getting a balance transfer credit card with 0% APR offer for a year or more may be a better option. With a balance transfer though, you may not get approved for a credit line that’s high enough to cover your current credit card balances especially if you have bad credit.
- Looking to simplify your debt repayment. Juggling multiple debt payments from various sources can be frustrating and it’s easier to miss a payment this way. Consolidating your debt can reduce your chances of paying late fees or further harming your credit score. With just one loan, you only have one minimum monthly payment to worry about.
- Want to improve your credit score. If you are struggling to make all your payments on time, simplifying this process can help improve your payment history. If you pay down your credit card balances with a debt consolidation loan but continue to keep those cards open, this will also lower your credit utilization.
- Pay off debt within a specific timeframe. With a revolving line of credit, it’s difficult to tell when you’ll be able to pay the debt off if you’re not already paying off the balance in full each month. Personal loans for debt consolidation have fixed repayment terms and fixed interest rates so you can make predictable monthly payments and know exactly when your balance will be paid off.
How to Choose the Best Debt Consolidation Loan
Successfully getting a debt consolidation loan depends on a few different factors. If you’ve decided that debt consolidation is the best option for you, here are five things to consider.
Eligibility Requirements
Each lender has different eligibility requirements and knowing this can save time during the application process. Some lenders require a minimum income and credit score along with a preferred debt-to-income ratio (DTI). Your DTI is calculated by adding up all your monthly debt payments and dividing that amount by your monthly income. Lenders typically like to see a DTI of no more than 35% to 40% but the lower the better.
Make sure you’ve checked your credit score first to see where you stand. If you’re looking for debt consolidation loans for bad credit, options like Upstart are a good place to start since it has more lenient minimum credit score requirements. Keep in mind that some lenders don’t offer loans in certain states so check to make sure the loan is available in your area before applying.
Fees
Loan fees can add to the cost of your debt consolidation. An origination fee is one of the most common types of loan fees. It’s a one-time fee that lenders charge for processing the loan. Origination fees can range from 1% of the total loan amount to 9% or more.
Some loans may also charge a fee for paying off the loan early which is called a prepayment penalty. This may not be a concern if you plan to make all the scheduled payments, but it’s good to be aware of this potential cost.
While not specific to the loan origination, late payment fees are important to note. Always make sure you understand the lender’s late payment policy to avoid any unexpected penalties. Some lenders have a grace period of 10 to 15 days before charging a late fee so this allows you to make your payment without that extra charge. Be sure to factor in these fees when assessing the overall cost of the loan and consider whether paying the fees is worth the consolidation convenience.
Loan Amount
Most consolidation loans for bad credit allow you to borrow up to $50,000. The loan amount is dependent on how much debt you want to consolidate and the lender’s maximum loan limits. Be cautious of over-borrowing, and consider each lender’s minimum and maximum borrowing limits.
When it comes to the loan amount, you also want to consider loan consolidation terms. Longer loan terms can reduce your monthly payments but may increase the total interest you pay over time. Work with a lender to find a loan amount and term that balances your short-term financial needs with long-term financial health.
Repayment Options
The repayment term you choose will also impact your monthly payment and possibly your interest rate as well. Sometimes you can get a slightly lower interest rate for a longer term and this can also lower your monthly payment.
If you’re looking to save as much in interest payments as possible and pay your loan off quickly, a shorter repayment term may be best. Once you lock in your repayment term, you can’t change it unless you refinance the loan and switch lenders. If you find that you can repay your loan balance before the term ends, make sure the lender doesn’t charge any prepayment penalties.
Debt Consolidation Loans for Bad Credit vs. Alternatives
A debt consolidation loan won’t be the best option for everyone and there are many other ways to pay down your debt. These four debt consolidation loan alternatives are worth looking into as you explore all your options for debt relief.
Debt Consolidation Loans vs. Personal Loans
A personal loan is similar to a debt consolidation loan and some lenders may even use the two terms interchangeably. Personal loans tend to be more flexible though since you can use them for a variety of purposes and the loan will either be secured or unsecured. Secured personal loans require collateral while unsecured loans place more emphasis on your credit history.
Debt Consolidation Loans vs. Balance Transfer Credit Cards
Another way to consolidate your debt is by transferring all of your high-interest debt onto one with an introductory low- or zero-interest promotional offer. This can provide temporary relief from high monthly payments and interest rates, giving you a chance to pay down your debt more strategically.
Balance transfer credit cards come with an introductory 0% APR period. Some of the best balance transfer cards offer 0% APR for 12 to 18 months or more. Some cards also offer an introductory 0% APR for new purchases as well but if the card doesn’t, you’ll be charged the standard interest rate for any new charges to your credit card. With a balance transfer, be sure to factor in any balance transfer fees, which are a percentage of the total amount transferred.
The one major risk of getting a balance transfer credit card is the temptation to spend more on your new card and rack up even more debt. With a debt consolidation loan, you only have the option to pay down your balance without adding more to it with new purchases.
Debt Consolidation Loans vs. Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) can offer favorable terms for homeowners with enough equity in their homes. It’s a revolving line of credit that you can draw from for several years and pay back as you go. At the end of the drawing period, you’ll enter the repayment period if there’s still an outstanding balance.
With a HELOC, your home is used as collateral so you could lose your house if you fail to repay the loan. If you have significant equity in your home, a stable income and can manage credit effectively, a HELOC can be a cost-effective way to consolidate and repay debt.
Debt Consolidation Loans vs. Debt Settlement
Debt settlement, also known as debt negotiation or credit settlement, is a process that allows you to significantly reduce the amount of your unsecured debt by negotiating a settlement agreement with your creditors. This can be a lifeline for people who are unable to keep up with their debt payments and are facing financial hardship. Instead of filing for bankruptcy, which can have long-lasting negative consequences, debt settlement offers a way to settle your debts through negotiation.
Debt settlement isn’t a guarantee, and you want to continue making payments on your debt during the negotiation process so you don’t get late fees or damage your credit score. There are also some companies out there that don’t offer legitimate help. Beware of companies that make guarantees, charge fees before settling your debt, or advertise a vague government program for debt payoff that may not exist.
Frequently Asked Questions
Does Debt Consolidation Hurt Your Credit?
Debt consolidation may hurt your credit but only temporarily. When you apply for a loan, the lender will run your credit resulting in a hard credit pull. Adding a new loan to your credit report may also adjust your credit score. But a debt consolidation loan can also help improve your credit score as you make on-time monthly payments to pay down your balance. This helps build positive credit history and reduces your overall debt amount on your credit report.
Can I Get a Loan With a 400 Credit Score?
Securing a debt consolidation loan with a credit score of 400 may be challenging, as this score is considered poor by most lending standards. But some lenders specialize in loans for people with bad credit. Be prepared for higher interest rates and additional fees, which lenders use to offset the risk associated with a low credit score.
Are There Guaranteed Debt Consolidation Loans for Bad Credit?
No, there are no guaranteed debt consolidation loans for bad credit. Lenders will always assess your creditworthiness and financial situation before deciding whether to approve your loan application. But there are lenders who specialize in providing loans to individuals with bad credit. Make sure to research and compare options from different lenders before making a decision.
Editorial Note: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post. We may earn a commission from partner links on Newsweek, but commissions do not affect our editors’ opinions or evaluations.
