Best debt consolidation loans for bad credit of November

The average consumer debt balance for those with FICO scores below 580 grew 20.5% to $43,584 by the third quarter of 2023. And more people are using personal loans to consolidate debt to get a lower annual percentage rate (APR), a lower monthly payment, or escape a variable interest rate.

But getting a debt consolidation loan with bad credit has its challenges. The first of which is finding a legitimate lender that offers loans for bad credit. You may also want to take steps to improve your credit before applying, as it can be easier to get a loan with fair credit.

Best debt consolidation loans for bad credit

Debt consolidation merges multiple existing debts - like high-interest credit card balances - into a new, larger debt, ideally at a lower APR. Unlike credit cards, personal loans for debt consolidation tend to have fixed rates and repayment timelines, as well as lower interest rates. This means your monthly payment won’t change, you’ll have a clear timeline for when the loan will be paid, and you can lower your payments and reduce your interest costs.  

Compare rates for bad-credit debt consolidation loans of November 2024

Methodology

We evaluated the best debt consolidation loans for bad credit based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Our team of experts gathered information from each lender's website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.

Read our full lender rating methodology for more information.

What is debt consolidation for bad credit?

As long as you can qualify, debt consolidation works the same regardless of your credit. It allows you to combine multiple smaller debts into a single loan with one monthly payment. You use the funds to pay off your initial balances, and begin making payments on your new loan.

Lenders who cater to borrowers with bad credit may have more lenient qualification requirements, but you'll likely face higher-than-average rates. The average APR for a 24-month personal loan was 12.49% in February 2024, according to the Federal Reserve, but rates can top out around 36%.

Learn More: What is debt consolidation?

How to compare debt consolidation loans for bad credit

Many personal loan lenders provide the option to prequalify to view possible rates, terms, and amounts you may qualify for with just a soft credit pull (meaning it won't hurt your score). You'll first need to provide the lender - or loan marketplace - some personal information, such as your name, date of birth, and Social Security number. The lenders use this information to determine your creditworthiness, or how likely you are to repay your debt, and provide you with loan options you prequalify for. 

When shopping for a loan, pay attention to the following:

• APR: The annual percentage rate includes the interest rate and any upfront fees. Those with good credit usually qualify for the lowest rates, but comparing APRs across lenders can help you land more competitive terms. Some debt consolidation lenders, such as Universal Credit, even offer rate discounts for allowing direct pay to creditors.
• Fees: Many personal loan lenders charge origination fees, which are accounted for in the APR and typically deducted before you receive the funds. This means you may need to borrow more to pay off the same amount of debt. Other common fees include late payment fees and insufficient funds fees.
• Available loan amounts: Add up your debt so you can narrow your search to lenders that can offer that amount.
• Repayment terms: Personal loan repayment terms typically range from 1 year to as long as 7 years, but this varies by lender. A longer term often means a lower monthly payment, but more money spent on interest. Decide how much you can comfortably afford to pay each month for the life of the loan and use that to guide your search.
• Customer service: You can get an idea of what a company's service is like by reading reviews on sites like the Better Business Bureau and Trustpilot, looking at official complaints, and seeing what customer service methods and hours are available. Look for any patterns in the feedback.

Pros and cons of debt consolidation for bad credit

Pros

• Simplified finances: Debt consolidation allows you to reduce your number of monthly payments.
• Chance for a lower APR: Personal loans have lower APRs on average than credit cards, according to the Fed.
• Could lower monthly payment: A lower rate combined with a longer repayment term could help reduce your monthly payment.
• Potential to boost your credit: If you're consolidating multiple credit card balances, you could see your credit utilization drop sharply, which can boost your score, as can making on-time payments consistently.
• Replace a variable interest rate for a fixed rate: If you have credit card debt, you likely have a variable interest rate, which means your rate could increase. Replacing it with a fixed rate personal loan means your monthly payment won't change for the life of the loan.

Cons

• May be difficult to qualify: With bad credit, you're likely to qualify with fewer lenders, limiting your options.
• Might come with fees: Some consolidation loans require upfront costs, like origination fees, along with other potential fees.
• No guarantee of a lower rate: You may end up qualifying for a higher rate than what you're currently paying.
• Chance for continued cycle of debt: Debt consolidation doesn't address possible underlying financial habits that can hurt your budget.

How to qualify for a bad-credit debt consolidation loan

How much you're approved to borrow (and if you're approved at all) is based largely on your credit score, income, and the monthly payment the lender thinks you can manage. Review each lender's requirements carefully before applying to avoid unnecessary hard inquiries on your credit report.

The best ways to improve your chances of qualifying for a debt consolidation loan are to build up your credit score, increase your income, apply with a cosigner, or get a secured personal loan. If you use a cosigner, they will be responsible for paying the loan if you don't.

How to build credit quickly (with bad credit)

1. Use a rent reporting service: Experian Boost and Self are two companies that can report your payments for rent and utilities, like cell phone bills and streaming services. Look for a company that reports rent payments going back two or more years (but be prepared to pay a fee).
2. Become an authorized user: If a close friend or family member has good credit and is willing, you could ask to become an authorized user on their credit card. This allows you to benefit from their good credit habits and can increase your available credit, thereby decreasing your credit utilization.
3. Dispute credit report errors: If an error on your credit report is dragging down your score, dispute it. Request a free copy of your credit reports from AnnualCreditReport.com. If anything isn't right, file a dispute with the appropriate bureau.

How to apply for a debt consolidation loan for bad credit

1. Check your credit: Knowing your credit score and any potential roadblocks on your report can help you narrow down your search to the lenders most likely to work for your situation. Visit AnnualCreditReport.com for free copies of your reports.
2. Prequalify: It won't impact your credit score, and it can give you an idea of how much you might qualify for and at what rate.
3. Apply for your loan: Move forward with the full application. You'll need to provide personal and employment information, along with details of where you'd like the funds sent to, whether it's to you or directly to your creditors. It's at this point that a hard credit inquiry will be triggered, which can hurt your score.
4. Receive your loan funds: If your application is approved, you can expect to receive your funds as soon as the same or next business day in some cases, though it can take up to a week.
5. Begin repayment: If you didn't opt for direct payments to your creditors, you'll want to pay off your balances when you're able and begin making payments on your new loan.

Related: How to get a personal loan

What to do if you're denied a debt consolidation loan

If your debt consolidation loan application is denied, don't panic. The best way forward is to learn what triggered the rejection. A low credit score, insufficient annual income, and/or high debt-to-income ratio are all common reasons a loan application may be denied.

Debt consolidation loan alternatives

Secured personal loan

Best for: Borrowers comfortable putting an asset on the line

If you can't qualify for an unsecured loan with your preferred terms, you may be able to secure one using an asset such as a car, investment account, or even the fixtures in your home. Just know that whatever you pledge can be seized by the lender if you don't make payments.

Check out: Secured vs. unsecured personal loans

Payoff strategies

Best for: Paying down debt without a loan

If you can afford your monthly payments and have a bit of extra room in your budget, consider tackling your debt using either the debt snowball or avalanche method. The snowball method involves prioritizing your smallest debt while making minimum payments on your others. You then apply the freed-up minimum payment to the next debt. The avalanche method works on a similar principle, but focuses on paying down your highest-interest debt first.

Related: How to pay off debt fast

Balance-transfer credit card

Best for: Those who can pay down their debt using a 0% APR offer

If you have high-interest credit card debt, you may be able to save money by transferring some or all of it to an existing credit card with a 0% introductory APR offer. If you can repay the balance within that offer period, you won't pay any interest at all. Check your current cards for offers, since it's unlikely you'll get approved for a new 0% APR credit card with bad credit.

Home equity loan or HELOC

Best for: Borrowers with sufficient equity in their home who are comfortable using it as collateral

Both home equity loans and lines of credit allow you to borrow against the equity you've built in your home to pay off debt. Since both are secured by your home, they may be easier to qualify for relative to an unsecured personal loan. If you're unable to make payments, however, you could lose your home.

401(k) loan

Best for: Utilizing retirement savings

If your plan allows it, you may be able to borrow against your employer-sponsored 401(k). You won't need to undergo a credit or income check, and you may be able to borrow up to 50% of your vested account balance, or $50,000 (whichever is less).

Just know that borrowing from your 401(k) carries significant risks, especially if you lose or leave your job and can't repay the loan in full. You could owe income tax on the unpaid loan amount plus a 10% penalty tax if you were under 59 ½ when you received the loan.

Debt management plan

Best for: If you can't afford payments

A debt management plan, usually offered through a credit counseling organization, can help consolidate your debts. The counselor works on your behalf to negotiate lower rates or payments on your debts. You then make one monthly payment to the organization, which distributes it to your creditors.

Bankruptcy

Best for: A last resort

When you go through bankruptcy, your nonexempt assets are liquidated to pay off your debts, or you enter into a 3- to 5-year repayment plan (if you file for Chapter 13 as opposed to Chapter 7). Any debt that can't be repaid through liquidation or a payment plan is typically forgiven, with some exceptions.

Though it can eliminate your high-interest debt, bankruptcy has serious implications for your credit score and can remain on your report for up to 10 years, making it difficult to obtain new credit such as an auto loan or mortgage, especially for the first year after you file. Speak with an attorney about your options before proceeding.

FAQ

Are debt consolidation loans bad for your credit?

A debt consolidation loan may temporarily hurt your credit, as it results in a new hard inquiry and reduces the average age of your accounts. As long as you make on-time payments on the loan, though, you're likely to see your score improve. 

If you're paying off revolving debt like credit cards, your score may rise relatively quickly as you decrease your credit utilization. But you'll want to keep those accounts open and balances low after you pay them off.

How can I improve my credit score?

The most effective long-term way to improve your credit score is to make on-time payments on all your bills, every month. Other ways to boost your score include limiting hard inquiries on your credit report and maintaining long-standing credit accounts. 

For more short-term gains, consider signing up for a service that reports utility payments to one or more credit bureaus, like Experian Boost. Or, become an authorized user on someone else's credit card.

Where can I get debt consolidation loans for bad credit?

If you already have a relationship with a traditional bank or credit union, you could start by asking if you qualify there. Additionally, consider online lenders who work with borrowers with bad credit. You can prequalify via a personal loan marketplace to see which lenders are most likely to approve your application and where you may be able to get the best rates.

Related Articles:

• How can I get out of debt with bad credit?
• How does debt consolidation work?
• Types of debt consolidation loans
• How to consolidate debt
• Where to get a personal loan
• Best hardship loans for bad credit
• Best credit card consolidation loans
• Best debt consolidation loan rates