How To Consolidate Debt With Bad Credit and Take Control of Your Finances

If you're wondering how to get out of debt with bad credit — know that the options are rather limited. This is because in order to get a loan, a lender must trust that you'll pay back the money you borrow — and a low credit score indicates that you're a risky borrower.

For this reason, you may need a cosigner to effectively vouch for you. Or, you may have the option of submitting collateral to reassure the bank that they won't lose money if you default on your loan.

Work with lenders that focus on those with poor to fair credit — 669 and below, according to FICO.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

How To Qualify for a Debt Consolidation Loan With Bad Credit

Before you apply for a debt consolidation loan, check to see if there's any proactive step you can take to improve your credit score.

• Are there any errors on your credit report that you can dispute?

• Can you use a tool like Experian Boost to show lenders that you faithfully pay your monthly rent and utilities?

• Can you prove you have a stable income?

If these aren't an option, consider:

Getting a Cosigner

You may consider applying with a cosigner who does have stable income if this is your situation. Their income and respectable credit score may be enough to push your loan application through.

Finding a Lender for Poor to Fair Credit Scores

Again, some lenders specifically tout that they're bad credit-friendly. Stick with these folks — it doesn't guarantee an approval, but your odds are infinitely higher than trying your hand at a bank that requires good-to-excellent credit.

Best Ways To Consolidate Debt With Bad Credit

Several lenders may be able to assist you with a debt consolidation loan. With poor credit, you can't be too choosy; but that doesn't mean you should neglect to compare rates. Shop around a bit to see all your available options.

Which Lenders Offer Debt Consolidation Loans for Bad Credit?

It's worth mentioning that, as someone with bad credit, you'll need to make the bank understand that you're a trustworthy person — despite what your credit score indicates. Your best bet may be with local credit unions, perhaps one that you've built a relationship with, to whom you can explain your new situation and flex your banking history.

If you'd rather go the direction of a bank or online lender, here are a few to consider.

What If You Don't Qualify for a Debt Consolidation Loan?

If you can't seem to catch a break or find a cosigner to back your application, all's not lost. You may be able to negotiate your debt yourself by calling your creditors. This can result in reduced payments, lowered interest rates and even forgiveness of some of your debt.

You can also work to build credit by opening a secured credit card, which requires a refundable security deposit, to show banks that you're consistent with timely payments. If you've got multiple credit cards with balances, chip away at your current debt with strategies like the snowball or avalanche method.

For more extreme measures, consider working with a nonprofit credit counseling agency. They may help you start a debt management plan (DMP), aiding you in rolling all your debts into one monthly payment. However, all credit cards included in your DMP will likely be closed.

Who Should Consider a Debt Consolidation Loan With Bad Credit — and Who Shouldn't

A debt consolidation loan might be right for you if:

• You have steady income and can handle fixed monthly payments.

• Your credit score is low but improving, and you meet a lender's minimum, e.g., starting at 580.

• You're paying high interest rates on credit cards or payday loans.

• You want to simplify payments into one due date each month.

• You're planning to avoid new debt and stick to a budget moving forward.

• You've tried budgeting or debt payoff strategies, but they're not working fast enough.

You may want to look at alternatives first if:

• You're behind on current payments and struggling to cover basic expenses.

• You don't qualify for a consolidation loan without very high interest rates.

• Your credit score is below 580 and lenders keep denying your applications.

• You're already dealing with collections or legal notices from creditors.

• You're unsure if you can commit to a new loan repayment plan.

• You haven't explored nonprofit credit counseling or hardship programs yet.

FAQs

Can I consolidate my debt with bad credit?

It's not a guarantee, but you may be able to consolidate your debt with lenders that cater to those with poor credit. You may have to offer some type of collateral.

What are the best lenders for poor credit?

The best lenders for poor credit include Upstart and OneMain Financial.

How does consolidation affect your credit score?

Consolidation affects your credit score positively in the long run. If you've got large balances on your credit cards, a loan to pay down those balances will lower your credit utilization which can skyrocket your credit score.

Can I consolidate credit card debt before applying for a mortgage?

Yes, you can consolidate debt before applying for a mortgage, but just note that when you open a new loan, your score may dip a bit. This is because lenders perform a hard credit inquiry on your credit before they approve you for a loan. A temporarily lower credit score may have negative effects on your mortgage rates.

What if I get denied a consolidation loan?

If you're denied a consolidation loan, you may need a cosigner to win an approval. You may also need to call your lenders yourself to try and work out lower payments or reduced balances. Also, consider a debt management plan (DMP) if you're having a difficult time seeing the light at the end of the tunnel.

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