How To Consolidate Debt With Bad Credit: 6 Smart Options

Consolidating debt with bad credit usually involves taking out a loan, using a balance transfer credit card or enrolling in a DMP to combine multiple balances into one monthly payment.

• Every lender sets its own minimum credit score requirements, but you’ll generally have a better chance of approval with a “fair” FICO score of 580 or higher. If your score is lower, you may still qualify with a lender that specializes in bad credit loans.

• Whereas banks are charging their most highly qualified borrowers an average prime rate of 7.00%, per the Federal Reserve, borrowers with bad credit could pay more than five times that amount for a personal loan from a bad-credit lender.

• Having a co-signer with strong credit who can guarantee repayment, or putting up collateral to secure the loan, might improve your chances of getting approved.

• If you’re unable to get approved for a loan, credit counseling might be the fastest alternative for consolidating your debt.

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.

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Can You Qualify? Credit Score Thresholds

The following table will help you identify the lenders most likely to approve your application.

Compare Lenders for Bad Credit Debt Consolidation

Here’s an at-a-glance look at how several lenders often included among the best personal loans for bad credit compare.

How To Get a Debt Consolidation Loan With Bad Credit: Step-by-Step Guide

Getting a debt consolidation loan can be challenging if your credit is bad. Follow these steps to increase your chance of being approved.

Step 1: Check Your Credit Score

Knowing your credit score before you apply lets you target the lenders most likely to approve your debt consolidation loan.

Although lenders can choose from many different scoring models, when they’re evaluating your credit, the FICO Score 8 and VantageScore 3 are the most common and easiest to find. Budgeting apps, bank accounts and credit card providers sometimes offer them for free. Alternatively, you can purchase your scores online.

Once you know your score, consider signing up for credit monitoring so you can track your progress as you improve your credit, and keep an eye out for fraudulent use of your accounts. 

That security is more important than ever. Many types of financial fraud are on the rise, and credit cards are the most common way scammers steal consumers’ identities, according to the Federal Trade Commission’s Consumer Sentinel Network.

Step 2: Calculate How Much You Need To Consolidate

You’ll need an accurate picture of your debt before you start applying for loans. Otherwise, you won’t know how much to borrow or how to prioritize payoffs.

For example, if you're approved for the average personal loan rate of about 12%, according to Federal Reserve data, it may not make sense to consolidate a balance that's already carrying a lower APR.

Before you apply, gather the following information for each debt:

• Your most recent account statement

• Current balance

• APR

• Minimum monthly payment

Then organize the information in a worksheet like the example below.

Once you've listed all your debts, add up the balances. Then add about 10% to account for potential origination or administrative fees that may be deducted from your loan proceeds.

Keep In Mind

In the example above, the medical payment plan isn't prioritized for consolidation because it has a 0% interest rate. Moving the balance to a personal loan with a higher APR would increase the cost of the debt rather than save money.

Step 3: Shop Lenders That Work With Bad Credit

If you need a personal loan but have bad credit, comparison-shopping is the best way to ensure that you get the lowest rate you qualify for. Be sure to look at the APRs rather than the interest rates when you compare the loans.

APRs represent actual loan costs more accurately because they include the interest rate as well as the origination and administration fees. 

Also be aware of how the lenders check your credit to prequalify you for the loans.

• Soft pulls for prequalification don’t affect your credit.

• However, most lenders do a hard pull when you apply for the loan.

• According to FICO, a hard pull lowers most people’s credit score by fewer than five points, but that could make a difference if it bumps your score down from “fair” to “bad.”

• Multiple hard pulls made within 14 to 45 days, depending on the scoring model, will only count as a single inquiry.

Step 4: Consider Alternatives If You Don’t Qualify

One of the following alternatives to debt consolidation loans might be the solution you need.

• DMP: A DMP administered by a nonprofit credit counseling agency consolidates your debt so you make just one monthly payment. The National Foundation for Credit Counseling says DMPs typically eliminate debt in three to five years.

• Credit union loan: Credit unions are nonprofit and member-owned, so their credit requirements are often more flexible than other lenders.

• Balance transfer card: A 0% introductory rate can make a big dent in your debt if you can pay it off before the regular rate takes effect.

• Home equity line of credit (HELOC): A reusable credit line against your home equity can consolidate your debt and help you avoid new credit card debt for years to come.

• Secured personal loan: Using your car or other valuable items as collateral can help you get approved or qualify for a better rate.

Step 5: Compare Offers Through a Marketplace

Federal Reserve data shows that the average credit card rate is 21.19%. That's over 9% higher than the average rate for a personal loan, so consolidating can save you thousands of dollars in interest on larger balances.

A personal loan marketplace helps you maximize those savings with rate quotes from multiple lenders that loan money to people with your credit profile, so you won’t waste time with lenders unlikely to approve you for a loan.

• You start by narrowing your lender search using filters like the amount you need to borrow, your ZIP code, credit score range and loan purpose.

• Then simply request rate quotes from the selections shown on your screen.

• Once you’ve answered a few more questions about your credit and income, lenders send you their offers.

• Checking personal loan rates this way won’t impact your credit. 

Step 6: Apply and Consolidate

You can follow these steps to get the application process started:

1. Gather the information and documents: You’ll need your Social Security number, a government-issued photo ID and proof of employment and income.

2. Apply for one or more loans: Remember, depending on the scoring model, applications you fill out within 14 to 45 days of each other count as one inquiry.

3. Watch for responses: You could be approved instantly and have your money as soon as the same day, but most loan approvals and funding take one to three days.

4. Double-check your debt balances to verify the payoff amounts: Some loans pay your creditors directly — just enter the creditor’s information, the account number and the amount to pay. Other loans simply deposit the funds into your account, and you pay the creditors from there.

Alternatives if You Can’t Qualify

Before you choose an alternative, compare other options like a debt consolidation loan, balance transfer card, DMP and more side by side.

Debt Consolidation Loan

Debt consolidation loans usually have origination fees that can run as high as 10%. You’ll have to include the fee in your loan, which means you’ll have to borrow more than you need to consolidate your debt, and you’ll pay interest on the full amount.

Credit Union Loan

Credit unions are membership-based, so you’ll need to join one by opening a savings account before you can apply for a loan. While some allow anyone to join, others restrict membership to people who live, work, worship or attend school in a particular geographic location, work for a particular employer or meet other criteria.

DMP

All credit cards included in your DMP will likely be closed. The closures can adversely affect your credit by increasing your credit utilization rate and the average age of your accounts.

Balance Transfer Card

The 0% or other low rate you’re initially offered is an introductory rate that will increase to the standard rate once the promotional period ends. Also, you’ll pay a balance transfer fee that usually amounts to 3% to 5% of your transferred balances.

Home Equity Loan or HELOC

HELOCs have many of the same fees you paid with your first mortgage. Also, your home serves as collateral for a HELOC, so the lender could foreclose if you default on the loan.

Secured Personal Loan

Secured loans require collateral, such as a car title or cabinetry and other fixtures in your home. The lender can repossess these items if you default.

Who Should Consider a Debt Consolidation Loan With Bad Credit

A debt consolidation loan might be right for you if:

• You have a 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 to a single 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.

Key Terms

• Debt consolidation: Combining multiple debts into a single loan or monthly payment, ideally at a lower overall interest rate.

• APR: The yearly cost of a loan including interest plus fees, which makes it a truer comparison tool than the interest rate alone.

• Credit utilization: The share of your available revolving credit you're using. Lower utilization generally supports a higher credit score.

• DMP: A repayment arrangement set up through a nonprofit credit counseling agency that combines your debts into one monthly payment, usually over three to five years. Enrolled cards are typically closed, which can temporarily affect your score.

• Secured loan: A loan backed by collateral such as a car title or savings. The lender can seize the asset if you default.

• Hard inquiry: A lender's credit check when you formally apply, which can lower most scores by a few points.

• Balance transfer card: A credit card that lets you move existing balances, often at a 0% introductory rate that later rises to the standard APR, plus a transfer fee of 3% to 5%.

Sources

• myFICO: What is a Credit Score?

• Federal Reserve: Selected Interest Rates (Daily) - H.15

• Federal Reserve: Consumer Credit - G.19

• Federal Trade Commission: Fraud Reports

• Consumer Financial Protection Bureau: What is the difference between a loan interest rate and the APR?

• Federal Reserve Bank of St. Louis: Finance Rate on Personal Loans at Commercial Banks, 24 Month Loan (TERMCBPER24NS)

Joseph Hostetler contributed to the reporting for this article.

Data is accurate as of Oct. 16, 2026, and is subject to change.

Photo Credit: fizkes | iStock.com

Parts of this article were created with AI assistance. MoneyLion editors reviewed, fact-checked and edited the final version and are responsible for its accuracy.