At a Glance

Accumulating debt is one of the key factors in lowering your credit score. Consolidating that debt with a debt consolidation loan is more difficult when you have bad credit. It’s not impossible though, and it’s also not the only way to solve your problem. There are other options available if you’re willing to do the legwork. In this article, we’ll go over some of those options.

What is debt consolidation?

Debt consolidation is when you take out a new loan in order to pay down high-interest debt. It can help you roll several payments into a single one each month and save money.

If you want options for debt consolidation with bad credit, usually defined as a FICO score below 579, you’ll be more limited, but there are still ways you can consolidate.

Learn more: What is Debt Consolidation & How to Do It

Is debt consolidation bad for your credit?

When a debt consolidation loan is first approved, the borrower may see a slight dip in their credit score. This is because the lender did a “hard inquiry” before approving you and the “amount you owe” just went up. Pay off your credit cards immediately to balance that out, then wait a few months. You’ll see your credit score start to climb.

Can I get a loan for debt consolidation with bad credit?

Borrowers with “fair” credit scores (580-669) can usually find a lender online who will approve them. Confirm the interest rate before going this route because it may not be lower than what you’re paying on your credit cards. That doesn’t mean you shouldn’t do it. A stable fixed rate monthly payment is better than paying multiple minimum monthly credit card payments.

If your credit score is under 580, getting approved for an unsecured personal loan is unlikely. There are other options that you could be eligible for, like payday loans and title loans. If your situation is desperate and you need money right away, investigate those. If not, review the suggestions we’ve included below for improving your credit score.

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5.94% - 35.97%

Est. APR Range

$1,000 - $50,000

Loan Amount

2-7 years

Loan Term

Good For: Low loan amount

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Best Egg


5.99% - 35.99%

Est. APR Range

$2,000 - $50,000

Loan Amount

3-5 years

Loan Term

Good For: Low min. APR for bad credit score

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9.95% - 35.99%

Est. APR Range

$2,000 - $35,000

Loan Amount

2-5 years

Loan Term

Good For: Fast funding

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9.99% - 35.99%

Est. APR Range

$2,000 - $36,500

Loan Amount

2-5 years

Loan Term

Good For: Fast funding

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OneMain Financial


18% - 35.99%

Est. APR Range

$1,500 - $20,000

Loan Amount

2, 3, 4, 5 years

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Good For: Fast funding

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What happens when you have bad credit?

Before getting into the consequences of bad credit, it’s important to first understand why credit scores go down in the first place. Missing payments is an obvious reason. If you don’t make your minimum monthly debt payments on time, your credit score will decline. Accumulating more debt is another factor. That’s what got you into this mess in the first place.

The category is called “amounts owed.” Another way to look at it is usage rate. If your spending limit on a credit card is $2000 and you’ve spent $1800 of it, that’s a 90% usage rate. Credit reporting bureaus want usage rates below 30% to award high credit scores. High usage will drop your score down to either “fair” or even “poor” when combined with other factors.

The consequences of a low credit score are that credit card companies and lenders may not extend you offers for additional credit. It also gets more difficult to get a loan for consolidating your credit card debt, though some online lenders specialize in that situation. If you are approved by one of them, expect to pay a high interest rate for the loan.

Options for debt consolidation with bad credit

The two primary options for debt consolidation with bad credit are personal loans or balance transfer credit cards. Some credit card companies offer a 0% interest introductory period on balance transfers. Those offers are scarce for folks with poor credit scores. Personal loans can be obtained if your credit score is over 580, but the cost will be high.

If you’re a homeowner, another option for debt consolidation is a home equity loan or home equity line of credit (HELOC). These are easier to get for bad credit borrowers because they’re secured by the equity in your home. Personal loans are unsecured. Lenders are more likely to approve you for home equity loans because their risk is lower. If you have poor credit, there are plenty of debt consolidation options outside of personal loans.

Options for homeowners

1. Home equity loan

A home equity loan acts as a second mortgage and uses your home as collateral. If you fail to make your payments, the lender can foreclose on your house. You can usually secure a home equity loan even if you have bad credit since it’s less risky for the lender than other types of loans.

Home equity loans typically have lower rates than debt consolidation and in some cases are tax deductible. Home equity loans are not eligible for bankruptcy.

Related: Should you use a home equity loan for debt consolidation?

2. Home equity line of credit (HELOC)

A home equity line of credit gives you access to a line of credit that is backed by your house. It acts as a credit card, and similar to a home equity loan uses your home as collateral. You can spend what you take out on whatever you need, but the interest is tax deductible if you use it on home improvement costs.

Related: Can You Get a HELOC With a Bad Credit Score?

3. Cash-out Refinance

A cash-out refinance uses your home equity to take out cash. However, you’re replacing your current mortgage with a new one, not adding a second mortgage. Lenders will allow you to take up to 80% of your home equity in cash.

Credit requirements for a cash-out refinance are lower than the requirements for a home equity loan. A cash-out refinance can give you a lower rate on your mortgage, but if you don’t make your payments you could lose your house.

Options for non-homeowners

1. Debt management plan (DMP)

Credit consolidation companies offer debt management plans, which help you set up a repayment plan and find a better interest rate. Your cards will get closed out, and you’ll pay one monthly rate to the consolidation company, which they then pay out to your creditors.

Having a bad credit score isn’t an issue for getting into a DMP, as credit scores aren’t factored into your acceptance. You’ll be able to consolidate your debt, though you will have to pay a monthly fee and won’t be able to take out any new credit until you’ve finished the program.

2. Balance transfer credit card

With a balance transfer, you take a high-interest balance and transition it to a card that has a lower interest rate. By moving your interest to a 0% or low interest APR card, you’ll be able to save money. If your credit is bad, this option might be a little tougher to qualify for.

Don’t forget that after an initial promotional period, your interest rate will increase to its normal level.

Related: How to Transfer Credit Card Balance

What Is the best option for improving bad credit?

The best option for improving bad credit is to pay your monthly debt bills on time and stop using your credit cards. Those balances need to come down if you want to see upward movement on your credit score. Debt consolidation will help stabilize your finances now, but it’s only a temporary solution if you don’t curb your spending.

Last-resort options for debt consolidation for bad credit

1. Debt settlement

Debt settlement sends your accounts to collections. The company settling your debt will negotiate settlements with your creditors to lower the amount you owe, and you’ll have one payment monthly. You can’t do a debt settlement on all types of debt, i.e. homes and cars are exempt.

Debt settlement is very bad for your credit score. In addition, it’s possible you could get sued by the creditors if you take too long to pay the money back.

2. Bankruptcy

Bankruptcy is a legal process overseen by federal court, and is often a last resort to eliminating debt. While some or all of your debts will be eliminated, bankruptcy has long-term negative effects on your credit and can stay on your report for up to 10 years.

The Bottom Line: Bad Credit Doesn’t Mean You’re Stuck in Debt

Having bad credit makes it difficult to borrow and could affect you professionally if credit checks are required in your field. It does not mean that you’re “stuck” in debt. There are debt consolidation options available to you, including personal loans, balance transfer credit cards, and home equity loans or HELOCs if you’re a homeowner.

Frequently Asked Questions

How do I get a debt consolidation loan with bad credit?

Visit your local bank or credit union first. A representative there will run your credit score and tell you what you’re eligible for. If nothing is available, try applying for a loan through an online lender. Most online sites will shop your request to find a matching lender.

What are the benefits of a debt consolidation loan?

Debt consolidation loans are beneficial because they eliminate high interest credit card debt and bring your payment obligations down to one fixed-rate monthly payment, which is easier to budget for.

Related: Why Should You Pay Off High-Interest Debt First?