Updated: Apr 01, 2024

How to Get a Debt Consolidation Loan With a Bad Credit Score

Learn how to get a debt consolidation loan when you've got bad credit scores, which could reduce your chances of approval. But, it's still possible.
Today's Rates
Super boost your savings with highest rates.
Savings Accounts up to:
5.35% APY

If you’re struggling to pay off debt and juggling multiple balances, a debt consolidation loan can simplify your finances and possibly speed up the amount of time it takes to get out of debt.  

A debt consolidation loan is a personal loan that combines multiple debts into a single loan, resulting in a single payment and a single monthly due date.

But although many people have successfully eliminated debt with a consolidation loan, qualifying for one with bad credit has its challenges.


It’s not impossible. 

Finding a lender to approve your application can be an uphill battle. But you can take steps to increase your chances of loan approval.

Clean Up Your Credit Report Before Applying

When applying for a loan, the lender will review your credit report and FICO credit score.

To no surprise:

Borrowers with the highest scores tend to qualify for the best interest rates.

It’s also easier for them to get approved because they’re less likely to default.

If you have bad credit, improving a low score takes time. Even so, you can take steps to clean up your credit report as much as possible, thus helping you qualify for a debt consolidation loan with bad credit.

Check your credit report for free

When was the last time you reviewed your credit report for accuracy? 

Order a copy of your credit report from AnnualCreditReport.com.

You are entitled to one free copy from each of the three major U.S. credit bureaus per year.

Fix mistakes

If you have mistakes on your report, dispute these inaccuracies

Removing erroneous negative items can help raise your credit score, which might provide enough points to help you qualify for a debt consolidation loan.

Address negative records

If you have a late payment on your credit report, contact the reporting creditor to see if they’ll remove this negative item. Some creditors will remove a single late payment as a courtesy.

Paying a collections account might also improve your chances of getting approved. Understand, though, paying a collections doesn’t always remove it from your credit report.

These types of delinquencies often remain on credit reports for up to seven years, although marked as paid.

Some people have negotiated a “pay for delete,” where a collection agency agrees to remove a legitimate collections account in exchange for full repayment. This practice has become less and less common, and typically only smaller collection agencies agree to this.

Decrease Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the percentage of your monthly income that goes toward minimum debt payments. 

A high DTI can make it difficult to get a loan, including a debt consolidation loan. Decreasing your ratio, though—by either paying down debt or increasing your income—can help you qualify.

The problem:

You might not have extra income to significantly pay down debt.

Still, look for any opportunity to decrease your DTI ratio.

For example, use any lump sum or windfall to pay down existing debt before applying for the loan. Or if you're anticipating an increase in income, wait until after your raise to apply for a debt consolidation loan.

Where to Find Debt Consolidation Loans for Bad Credit

Choosing the right lender increases your odds of getting a debt consolidation loan with bad credit. 

The reality is:

Applying for a loan with a big bank might not work in your favor. Debt consolidation loans are often unsecured, so many of these lenders have high minimum credit score requirements.

Your best chance of approval is applying with an online lender or a credit union.

Options might include:

  • OneMain Financial
  • Avant
  • Navy Federal Credit Union
  • First Tech Credit Union

Although an online lender or credit union might approve your application, you’re also likely to pay a higher interest rate. 

But don’t let a higher rate discourage you from applying.

In most cases, the rate on your debt consolidation loan will be lower than your current interest rates, especially if you’re consolidating credit card debt.

Compare Rates and Fees

Shopping around and comparing rates is crucial when applying for a debt consolidation loan with bad credit. Interest rates can vary from lender to lender.

So as a general rule of thumb, request at least three rate quotes from different lenders.

Don’t forget to compare personal loan origination fees, too. Some financial institutions will add a fee to the loan, which increases your overall cost.  

Common Personal Loan Fees

Type of fee Typical cost
Application fee $25 to $50
Origination fee 1% to 6% of the loan amount
Prepayment penalty 2% to 5% of the loan amount
Late payment fee $25 to $50 or 3% to 5% of monthly payment
Returned check fee $20 to $50
Payment protection insurance 1% of the loan amount

Repayment terms can also vary among lenders.

Typically, the longer the repayment term, the more you’ll pay in interest.

Paying off a loan sooner helps you save money in the long run, yet a shorter term also results in a higher monthly payment. 

It’s important to review your budget and choose a repayment term you can afford.

Tips for Managing a Debt Consolidation Loan

A debt consolidation loan only makes sense when managed responsibly.

In a perfect world, you’ll qualify for a loan that’s large enough to consolidate all your debts. 

However, the amount the lender approves might only be enough to consolidate some of your debts. In this case, it’s wise to pay off your debts with the highest APR, so that you’re able to save the most on interest charges.

Once you have a debt consolidation loan, set up auto payments to ensure a timely arrival. Paying your debt consolidation loan on time prevents late fees. In addition, it adds positive history to your credit report, which can boost your credit score.

It’s also important to practice self-control after getting a loan and consolidating your debt. If using a loan to pay off credit cards, consider physically destroying your cards after paying them off. 

This helps eliminate the temptation to re-accumulate debt. Don’t close the credit cards, though. Keeping the accounts open can benefit your credit score.

Alternatives to a Debt Consolidation Loan

Unfortunately, some people don’t qualify for a debt consolidation loan. This doesn’t mean that debt consolidation is off the table. Other options might include:

1. Balance transfer credit card

Even if your credit isn’t good enough to get a debt consolidation loan, it might be good enough to qualify for a balance transfer credit card.

If so, you can transfer your high-interest credit card balances to a card with a lower rate

This allows you to save money on interest. But only apply for a new credit card if you’re confident that you won’t rack up more debt.

2. Home equity line of credit/home equity loan

Another option is to use your home’s equity to consolidate debt. You can get a home equity line of credit (HELOC) or a home equity loan and borrow up to 80 percent of your home’s equity. 

The interest on a HELOC or a home equity loan will likely be less than what you’re currently paying.

The downside, though, is that you’re also converting an unsecured debt to a secured debt.

Defaulting on a HELOC or a home equity loan could result in foreclosure.

3. Hardship programs

It might come as a surprise, but some lenders have hardship programs to assist borrowers experiencing financial difficulties. 

If eligible, your lender might reduce your interest rate out of courtesy.

Some lenders might even offer debt reduction or forgiveness programs based on circumstances.

What to Know About Debt Relief Programs

If you don’t qualify for a debt consolidation loan, you might consider a debt relief program.

Be careful, though. 

Some of these programs use shady practices or make unrealistic promises regarding debt elimination, which can do more damage to your credit in the long run. 

For example, they might encourage you to stop making your monthly payments while they negotiate a debt settlement with your creditors. The problem is that there’s no guarantee that your creditors will accept a debt settlement or any type of negotiation. 

Each month that you don’t make a payment can further hurt your credit. It also puts you at risk of late fees, collection calls, and legal action.

Instead of using debt relief programs, it’s better to work with a certified credit counselor.

These reputable companies are often non-profit and offer free resources and education. You’ll learn how to budget and how to manage your money, credit, and debt. Your counselor also helps develop a solution to your financial problems. 

Before working with a credit counselor, check with your state’s Attorney General office to ensure an organization doesn’t have any complaints filed against them. You can also find a list of reputable organization from the United States Trustee Program.


Getting rid of debt can be challenging when you don’t have a lot of extra money, but a debt consolidation loan can help.

It doesn’t only simplify debt repayment. It can also get rid of debt faster and save money.

If you have bad credit, though, make sure you choose the right lender and take steps to improve your chance of approval.