At a Glance

Debt consolidation isn’t right for everyone, but there are plenty of options for how to consolidate debt—including for people with bad credit. If you’re looking for ways to consolidate your debt without damaging your credit score, here’s a helpful checklist that we expand on below:

  • Monitor your credit regularly
  • Consider your debt-to-income ratio
  • Keep credit utilization low
  • List which debts you want to consolidate
  • Make on-time payments
  • Shop around for the best rates
  • Factor in fees
  • Consider pre-qualification

What is debt consolidation?

Debt consolidation helps you combine multiple debts—like credit cards, personal loans, medical bills—into a single monthly payment, keeping your recurring payments simple and predictable. Usually, the main benefits of consolidating your debt are streamlining your payments and lowering your interest rate so you can get out of debt faster.

What is needed for debt consolidation?

There are plenty of factors that go into debt consolidation that are important to consider before applying for a loan, including:

  • Your credit score and history: A higher credit score and better credit history may result in more favorable rates for debt consolidation.
  • Your total amount of debt: Debt consolidation tends to be most effective for those with a large debt burden.
  • The interest rates on your current debt: Consolidating high-interest debt will result in the most cost savings.
  • Your income: Proof of a steady income says to lenders that you’ll be a lower-risk borrower for a debt consolidation loan.
  • Commitment: Debt consolidation is most effective for those who have already addressed the spending habits that put them in debt in the first place and are committed to making payments.

Consolidating debt with a loan

Using a personal loan or balance transfer credit card to consolidate debt is a straightforward process you can do on your own. Of course, when you choose to use a loan for debt consolidation, factors such as your income and credit score may be more heavily considered by lenders.

Consolidating debt without a loan

If you’re working to build better credit or would simply rather consolidate debt without a loan, options are available. You can opt to enroll in a debt management program (DMP). These services can help you make timely payments and can even negotiate with lenders on your behalf to get lower interest rates.

Steps to consolidate debt

The process of debt consolidation is straightforward if you follow these steps:

  1. Calculate how much you owe: Before you consider loan options for debt consolidation, you’ll need to know how much you owe. With this number in mind, you can choose the right type of debt consolidation.
  2. Determine your average interest rate: Since a major goal of debt consolidation is a lower interest rate, you’ll need to know the current interest rate for each debt.
  3. Figure out what you can afford to pay: There’s no sense in consolidating debt if you won’t be able to afford the payment. To ensure you make the right choice for debt consolidation, figure out how much you can afford to put toward debt after monthly essentials like food, rent, and transportation are paid.
  4. Review debt consolidation options: You’ll want to review the various types of debt consolidation services and loans to see which best suits your unique financial situation. Using a debt consolidation calculator may be able to point you in the right direction.

What debt do you want to consolidate?

Select all that apply

Others does not include mortgage

Should you consolidate debt?

Is consolidating your debt a good idea? Debt consolidation might work for you if you have:

  • A decent credit score – The higher your score, the lower your interest rate on a loan.
  • A steady job – Proof of income will help your approval chances because you’ll be able to make payments.
  • Discipline – If you’re committed to getting out of debt, you’ll be sure to make your payments in full and on time without piling on more debt in the meantime.
  • High-interest debts – Consolidation combines these debts while lowering your interest rate. A win-win!

Debt consolidation is probably not a good idea if you have:

  • Very little debt – If you can pay off all your debt in the next year, don’t consolidate. Just come up with a plan.
  • A ton of debt – Too much debt is also not the best reason to consolidate. If your debt-to-income ratio (DTI) is more than 50%, you’re not going to be able to make consistent payments anyway.
  • Bad credit – Consider other options because your poor credit will likely lead to astronomical interest rates, which would be counterproductive.
  • Little to no discipline – After all, debt consolidation doesn’t erase your debt, nor does it fix the behaviors that got you into debt in the first place.

Related: How Debt Consolidation Can Go Wrong

How to consolidate debt without hurting your credit

There’s a right way and a wrong way to consolidate your debt. If you do it correctly, you’ll be able to combine your higher-interest debts into a single monthly payment with a lower interest rate—and you won’t hurt your credit in the process.

Here’s a helpful checklist for how to consolidate debt without hurting your credit.

how to consolidate debt without hurting your credit
how to consolidate debt without hurting your credit

1. Monitor your credit regularly

Your credit score may take a temporary dip because of the hard inquiry when your lender does a credit check. But it should bounce back quickly.

2. Consider your debt-to-income ratio

You may need to up your income and/or pay off smaller debts before consolidating. The debt snowball method is a great way to knock out those smaller balances and get some quick Ws.

3. Keep credit utilization low

The more of your available credit that you use, the higher your credit utilization ratio will be. This can hurt your score, so try to keep your credit usage down—especially if you’ve transferred your debt to a balance transfer card.

4. List which debts you want to consolidate

It’s good to know what you’re consolidating before you start looking for loans. Use a debt consolidation calculator to figure out how much of a loan you’ll need and whether consolidating your debt is even right for you.

5. Make on-time payments

Consistent, on-time payments help your credit score—and keeping up with monthly payments helps let creditors know you’re reliable while paying more than the minimum can help you save money on interest.

6. Shop around for the best interest rates and terms

Don’t take out a debt consolidation loan without making sure you’ll be able to cover the monthly payments. Missing payments could result in fees and damage to your credit score. Also, favorable terms should lower your interest rate.

7. Account for fees

If you’re creating a budget or doing the math on which debt consolidation terms are best, be sure to include potential fees in your calculations.

8. See if you pre-qualify

If you know you pre-qualify for a debt consolidation loan, you’ll have a good idea of the amount you might be approved for. Pre-qualification credit checks are soft inquiries, so they shouldn’t hurt your credit score.

How to consolidate debt with bad credit?

Poor credit is not a death sentence. In fact, there are plenty of options for debt consolidation with bad credit. For a personal loan, you might need to get a cosigner who has good credit. Otherwise, your options will depend on whether you own a home.

Homeowners can consider the following:

  • Home equity loanA home equity loan acts as a second mortgage, allowing you to borrow a certain amount of money based on how much equity you own in your home. The catch is: Since you’re securing the loan with your home as collateral, you risk foreclosure if you default.
  • Home equity line of credit – With a home equity line of credit (HELOC), you get access to a line of credit based on how much equity you have in your home. HELOCs act more like credit cards than loans.
  • Cash-out refinance – By replacing your current mortgage with a new one, you’re able to borrow cash from your home equity. Cash-out refinances can help lower your mortgage rates, but you also risk foreclosure if you fail to make payments.

If you don’t own a home, here are some options for how to consolidate debt:

  • Debt management plan – With a debt management plan (DMP), you work with a company to negotiate lower interest rates on your behalf. Instead of paying your lenders directly, you make monthly payments to this third-party company, who then pays out to your creditors. This is a great option for people with bad credit—just note that you won’t have access to credit until you’ve completed your payoff plan.
  • Balance transfer credit card – For the well-disciplined, balance transfer credit cards can be an effective way to consolidate debt. Basically, you transfer your high-interest debt balances to a credit card that has a lower interest rate. Most balance transfer cards feature 0% APR introductory periods, which are great if you can pay off all your debt within 12-18 months. However, once that promotional period ends, you’ll face much higher interest rates.


To get a debt consolidation loan, you’ll need to have information about what debts you have, how much you owe, the interest rate, and personal information like your credit score and income. Once you gather that information, you can fill out an application for a debt consolidation loan online or in person with some lenders.

Consolidating credit card debt on your own takes a great credit score, cash flow, and discipline. You can apply for a balance transfer credit card, preferably one with a 0% APR offer. If approved, you’ll pay off existing creditors and begin aggressively paying down the balance of your new balance transfer credit card.

Whether you can consolidate all your debt depends on what type of debt you have. Many types of debts are eligible for consolidation, but not all of them. For example, if you have federal student loan debt, you won’t be able to consolidate it using a debt consolidation loan. But if you have multiple credit cards or personal loans, those are eligible for debt consolidation using a personal loan.