Can you get debt consolidation loans with bad credit?

While it’s difficult to get a debt consolidation with bad credit, it’s not impossible. Here’s what you need to know.

Anna Baluch
April 5, 2024

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If you’re overwhelmed with multiple high-interest debts, you may want to consider a debt consolidation loan. Put simply, a debt consolidation loan is a type of personal loan that allows you to roll several debts into a single payment. 

Consolidating multiple debts can make the debt payoff process more manageable and potentially save you some money on interest. While it’s more difficult to take out a debt consolidation loan with bad credit, it’s not impossible. Below, we’ll dive deeper into debt consolidation loans with bad credit. 

Can you get a debt consolidation loan with bad credit?

Getting approved for a debt consolidation loan with bad credit is not impossible, but it can be challenging—and occasionally not worth it. Lenders assess eligibility based on various factors, such as debt-to-income (DTI) ratio and income, so you'll likely have a shot if your financial health is stronger in those areas. 

However, depending on the product, you may receive a higher-than-average interest rate. Additionally, you might not qualify for a large enough loan to repay all your debts. In most cases, a secured loan is best for debt consolidation if your financial health is not in the best shape. 

Debt consolidation loans for bad credit: Weighing your options

In general, debt consolidation loans for bad credit fall into two categories: unsecured and secured loans.

Unsecured loans

Unsecured loans are based on your creditworthiness and don’t require collateral. Offered by banks, credit unions, and online lenders, they usually cap out between $50,000 and $100,000. Repayment is made via monthly installments over a set term, typically 2-7 years. 

The process is relatively fast; you submit an application, get approved or denied nearly immediately, and receive your funds a few days later. Unsecured personal loans come with fees, such as origination fees, application fees, late fees, and occasionally prepayment penalties. 

Secured loans

On the other hand, secured loans are tied to an asset you use as collateral, like a house or a car. Since the lender can seize the collateral if you default on the loan, they take on less risk. Therefore, getting approved for a secured loan is easier than an unsecured loan if you have bad credit. 

Secured loan options include: 

Bad credit loan

Some lenders offer bad credit loans geared explicitly toward borrowers with bad credit. Often, these loans require collateral, like a secured credit card or cash. As with all types of secured loans, if you fail to make your loan payments as you agreed to, the lender has the right to take the collateral.

Car title loans 

A car title loan is a secured loan that uses your car as collateral. Most lenders require that you own your car free and clear to take one out. After you get approved for a title loan, you’ll give the lender your car title in exchange for a lump sum of cash. The amount you receive is between 25% and 50% of the value of your car. Repayment consists of a fixed interest rate and set monthly payments. You will be able to continue driving your car as you repay your title loan.

Home equity loan/home equity line of credit (HELOC) 

A home equity loan allows you to borrow against your equity for a lump sum of cash. You’ll begin monthly repayment almost immediately over a term that is typically between 5 and 20 years. Interest rates are fixed and are more competitive than credit cards and personal loans, making for set monthly balances. 

With a home equity line of credit, you get approved for a certain loan amount but can access the cash as a revolving line of credit. The draw period lasts up to 10 years, and then you're on the hook for repayment, typically 20 years. HELOC rates are also competitive but variable, so your monthly payments can fluctuate during repayment. 

Home Equity Investment (HEI) 

Although not a traditional loan, a home equity investment is another way to tap into your home’s equity for cash. Unlike a home equity loan or HELOC, there are no monthly payments over the 30-year term. Instead, homeowners share a percentage of their home’s future appreciation when they decide to exit the partnership at any time during the term. 

HEIs have less stringent requirements: a credit score above 500, no income requirements, and a DTI ratio determined by your credit score.  

When does it make sense to consolidate your debt? 

Debt consolidation isn’t for everyone. However, it makes sense if you can: 

  • Simplify repayment:  If you can qualify for a large enough loan to settle all your debts, you can roll them into a single monthly payment. This will allow you to focus on one monthly payment and avoid the stress of having to budget for several monthly payments with varying interest rates and due dates. You’ll also find it easier to organize your finances with debt consolidation. 
  • Lower the interest rate: When interest rates are high, it can be difficult to become debt-free. Not only do high rates increase what you owe, but they also bite into your payments toward the balance. If you can land a debt consolidation loan with a lower interest rate, you can save hundreds or thousands of dollars in interest charges over time. You'll also reduce what you owe monthly, giving you the chance to pay down debt faster. 
  • Get savings that outweigh the cost: Before you consolidate debt, you should make sure you’ll save money. Since most loans come with fees and other expenses, make sure to calculate how they impact your total debt balance. There are online debt consolidation calculators that can help you estimate your potential savings. Just be prepared to plug in the total balance, interest rate, and monthly payments for all your debts.
  • Avoid taking on new debt: After debt consolidation, your credit cards will be available for spending again. If you're not prepared to stop taking on debt, you'll only dig yourself deeper into the hole. For debt consolidation to succeed, you must be prepared to make changes. In addition to being committed to repayment, you must control your spending and mitigate financial setbacks.

How to get a debt consolidation loan with bad credit

If you decide to move forward with a debt consolidation loan with bad credit, follow these steps: 

  • Check your credit: First, you should evaluate where you stand in terms of your credit to know what options are available to you. You can visit and pull free copies of your reports from the three major bureaus. Review each report carefully and dispute any errors or inaccuracies you find with the appropriate bureau. 
  • Take stock of your debt:  Write down your debt balances and interest rates. This will help you determine how much you need to borrow and what interest rates are worth pursuing.  
  • Shop around and prequalify: Do your research and find lenders open to borrowers with less-than-perfect credit. These may be local credit unions or online lenders willing to look beyond your credit score and consider other factors like your income and employment situation. Some lenders will allow you to prequalify and check potential loan offers without any impact on your credit. Taking advantage of prequalification will make it easier for you to compare offers. Once you have several options, compare borrowing amounts, interest rates, terms, and fees. Don’t forget to review each lender’s reputation. Ideally, you’d choose a reputable lender that will lend you enough money with the lowest interest rate and the most negligible fees.  
  • Consider a cosigner: A cosigner can help improve your chances of qualifying for a debt consolidation loan. If you have a trustworthy friend or family member with good credit, this can be a worthwhile option. Keep in mind that not all lenders accept cosigners. Also, if you default on your loan, your cosigner will be responsible for the debt.  
  • Complete an application: Once you decide on a lender and a potential cosigner, it’s time to apply. Be prepared to share financial documents, like your pay stubs or tax returns, to prove you have the funds to repay your loan. 
  • Pay off your debts: Upon approval, use the funds to repay your debts. In some cases, the lender will do this on your behalf and send the payments to your creditors. 

Debt consolidation loan alternatives

The good news is debt consolidation loans aren’t the only way to get out of debt. Here are several options you may want to consider instead:

Do it yourself

Creating a budget, like a zero-based budget, and sticking to it can help you get out of debt. With a budget, you'll better understand where your money is going each month. It will help you identify areas or expenses you may cut back on or eliminate so you can allocate more of your paycheck toward debt repayment. 

In addition to budgeting, try the debt snowball or the debt avalanche strategies: 

  • The debt snowball method prioritizes paying off small debts first. As a result, you'll reach wins quicker, helping build motivation on your journey to debt-free living. 
  • The debt avalanche method focuses on the highest-interest debts first to save as much as possible on interest. 

Either strategy will help you reach your financial goals so long as you commit. 

Work with a credit counselor

A credit counselor will work with you to develop a debt management plan (DMP) and simplify the payoff process. They’ll determine how much you can allocate toward your debts each month and attempt to negotiate lower interest rates with your creditors. You’ll have to make one monthly payment to the credit counselor, who will then distribute it on your behalf. 

Debt settlement

Also known as debt relief, debt settlement involves negotiating with creditors to convince them to forgive some or all of your debt. You can do this by yourself or hire a debt settlement company to do it for you. While debt settlement may seem like the perfect solution, it does come with major drawbacks. 

You’ll likely be encouraged to stop making payments during the negotiation process, which can further damage your credit. In addition, there is no guarantee that creditors will accept the settlement offers. Also, if you work with a company, you’ll likely owe them between 20% and 25% of the total settlement amount. 


Bankruptcy is a legal process for getting out of debt. With Chapter 7 bankruptcy or liquidation bankruptcy, your assets are sold to pay off as much debt as possible. Chapter 13 bankruptcy allows you to repay some or all of your debt during a three—to five-year repayment plan.

You shouldn’t file for bankruptcy until you’ve exhausted all your other options. Doing so can seriously damage your credit for up to 10 years and hinder your ability to borrow money in the future. 

Improve your credit—improve your options

As you work toward paying off debt, you'll undoubtedly see improvement in your credit score. This will make you eligible for more options and better rates as you navigate your journey to financial freedom. While it can take time and effort to see improvement, it will be worth it when you reach your financial goals. 

So, before rushing into a debt consolidation loan with bad credit, carefully approach your debt payoff journey with a mixture of DIY solutions and debt relief options. 

Final thoughts

It is possible to qualify for a debt consolidation loan with bad credit. However, it’s not guaranteed you’ll get the best rates and terms. Consider taking the time to improve your credit before you move forward with debt consolidation. You can also explore alternative options that may be a better fit for your unique situation. If you are a homeowner, consider using Point’s Home Equity Investment to eliminate your debts with no monthly payments. 

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