How to Get a Debt Consolidation Loan With Bad Credit

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Struggling with bad credit? A debt consolidation loan may be your ticket to rebuilding your finances.

In recent years, median household incomes have dropped 3%, but prices — on everything from a tank of gas to a pound of beef to monthly rent — are at an all-time high. When Americans are faced with higher bills and less money to put toward them, they often turn to credit cards.

Credit card debt in the United States has grown $52 billion in the first half of 2022 to a grand total of $856 billion. More than half of active credit cards carry a balance from month to month, and the average interest rate for a credit card has now reached nearly 20%.

And while credit card debt is potentially the most crushing for the average American, many households are also balancing mortgages, auto loans and student loan debt.

Check out our comparison of student loan interest rates from federal and private lenders.

Borrowers can often chart a less rocky course out of debt by opting for a debt consolidation loan. Even borrowers with bad credit can typically qualify for debt consolidation loans with the right banks, credit unions and online lenders.

What Is a Debt Consolidation Loan?

A debt consolidation loan is a personal loan that borrowers use to pay off multiple high-interest debts with various creditors. Because those various loans are paid in full, borrowers can then focus on just their debt consolidation loans with a single monthly payment and, ideally, lower annual percentage rate (APR)

Unliked credit cards, which operate with revolving credit, debt consolidation loans are designed as installment loans. So what’s the difference?

Revolving Credit

Credit cards give borrowers a set amount of money to borrow, called a credit limit. But if you borrow and pay it back, you can continue to borrow that money again and again.

You don’t have to pay off your credit card balance in full in any given month. As long as you make the minimum monthly payment, you can carry that debt from month to month, though you will likely be paying a high interest rate on that debt.

Because you are only required to make a small minimum payment each month, it’s easy to max out a card even if you don’t have the money to pay it off — and then accrue interest on it each month. And therein lies the danger of credit cards and revolving credit.

Installment Loans

An installment loan (think mortgage, an auto loan or a personal loan, such as a debt consolidation loan) is different. You borrow one single lump sum at the start of the loan, and then you have to make a payment (an installment) each month until that loan is paid off.

For personal loans, that monthly amount typically does not change over the life of the loan. You and the lender will agree on a monthly payment and loan term (number of years) at the start of the loan, and, like a rent or mortgage payment, you must pay it in full each month.

If you miss a payment, you could default on the loan.

Advantages of a Debt Consolidation Loan

If you are struggling with credit card debt, you’ll find a number of advantages with a debt consolidation loan among them one monthly payment, lower interest rates than credit cards, and the opportunity to raise your credit score as you pay off the loan.

One Monthly Payment

Late fees are no joke. And when you are carrying three or more outstanding balances with various credit card accounts, it can be more challenging to remember to make each monthly payment on time.

Calendar apps, reminders and automatic payments can certainly keep you honest, but eventually, if you are juggling too much, you’re likely to slip up, miss one of your debt payments and be slapped with a late fee.

But if you take out a loan to consolidate all your various other debts, you’ll only have to worry about one monthly payment. And you can usually set personal loans up for automatic payments so you don’t even have to worry about missing it.

Lower Interest Rate

In general, personal loan rates are lower than credit card rates. While interest rates vary by credit score, borrowers with credit scores in the mid 600s can expect an APR topping out at 20%. A credit card APR for the same borrower would be significantly higher.

If you have multiple credit cards with APRs ranging from 20% to 40%, you’ll likely be able to get a lower interest rate on a single debt consolidation loan. This could save you thousands — or, in some cases, tens of thousands — over the life of your loan.

Credit Score

When you first apply for a debt consolidation loan, your credit score may drop a few points. But paying off multiple credit cards and then making regular, on-time payments on your debt consolidation loan over time will actually boost your score.

And if the debt consolidation loan ultimately proves successful and gets you out of debt, your credit utilization will go way down, which will boost your credit score even higher.

Just avoid predatory credit cards in the future to keep your credit score healthy.

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How to Qualify for a Debt Consolidation Loan

What does it take to qualify for a debt consolidation loan? Each lender has their own criteria, but in general, they’ll review your credit history, current income and debt-to-income ratio (DTI). Some lenders have stricter credit score requirements, only giving out debt consolidation loans to those with 650 scores (or even 700).

But what if your score is lower?

Barriers for Bad Credit Borrowers

Because borrowers in need of a debt consolidation loan are generally struggling with lower credit scores, there are lenders that offer such loans with a lower credit threshold. Just be prepared for a higher interest rate and smaller max loan amount.

What does this mean? Lenders typically advertise personal loan APRs as a range. The low end of the range is usually an attractive number between 3% and 7%, but the high end of the range might be as high as 35.99%. Bad credit borrowers should expect their interest rate to fall nearer to that higher end.

On the FICO Score scale (the one most commonly used by lenders), bad credit is a score below 670. This encompasses both fair credit (580 to 669) and poor credit (300 to 579).

It also means that, while a lender may generally approve personal loans up to $50,000, a bad credit borrower may only be granted $25,000 — or even less. Depending on how large your debt is, you may not be able to pay off all your outstanding balances with a debt consolidation loan. If that’s the case, prioritize paying off your debts with the highest interest rates first.

Another barrier to consider for debt consolidation loans for bad credit borrowers: Most lenders charge an origination fee up front. This works like “closing costs” for your loan and can be as high as 10% with some lenders. If you don’t have the cash on hand to cover an origination fee, you may struggle to get a loan or have to wait until you can save money to afford this.

A final barrier to consider when applying for a debt consolidation loan with bad credit: There will be an immediate negative effect to your credit score. While this is temporary, such an impact can be more damaging to someone with an already low score.

How to Get a Debt Consolidation Loan With Bad Credit

The path might not be easy, but here’s how to get a debt consolidation loan with bad credit in four steps:

1. Wait for the Right Time

If you don’t need immediate help and can make small, incremental improvements to your credit score and DTI ratio for a few months, it may help to wait.

Try tackling one or two smaller debts on your own first. If you have multiple credit cards open, for example, and you think you can pay off one or two of them over a few months, take care of that before applying for the debt consolidation loan. Doing so will decrease your credit utilization, improve your debt-to-income ratio and boost your credit score — which should help you get a lower interest rate when you apply for your loan.

Plus, you can apply for a slightly smaller loan amount as you’ll have less debt to consolidate. This will improve your chances of getting approved.

2. Compare Options From Multiple Lenders

A huge pro of getting a personal loan from an online lender is the pre-qualification option. Most, though not all, lenders now let borrowers pre-qualify without an impact on credit scores.

To do so, you will need to provide accurate information about your income, outstanding debts and credit history. From that, lenders will make an educated guess about lending to you and let you know if you’ll be approved.

You can get pre-qualified with as many lenders as you would like. In their pre-approval offers, lenders will let you know the interest rate they intend to offer you, the loan amount you will be eligible for and any fees (like origination fees) you should expect to pay.

Load all this data into a spreadsheet, make a pros and cons list or just read through the offers carefully. Just be sure to analyze all the information thoroughly before making a decision.

Once you have settled on the right lender for your needs, you can begin the actual application process. As long as you didn’t fudge any numbers during pre-qualification, there shouldn’t be any surprises.

3. Improve Your Chances With a Secured Loan or Co-Borrower

While getting an unsecured personal loan by yourself is the ideal scenario, you can improve your chances for approval by applying for a secured loan or adding a co-borrower.

Secured Loans

By nature, debt consolidation loans are typically unsecured loans. That means the loans are not backed by any collateral, like a car or home. This makes the investment riskier to a lender.

Lenders do offer secured loan options for consolidating debt, meaning you could put up your assets as collateral. Doing so will generally get you a lower interest rate and improve your chances of being approved.

But it also comes with risks: If you default on your loan, you could lose the asset you put up as collateral.


Another option for improving your chances of loan approval is adding a co-borrower to the loan. Like a cosigner for student loans or a mortgage, the co-borrower on your personal loan can improve your chances if they have a stronger credit score and lower DTI ratio.

Finding a co-signer can be difficult, as this person takes on equal responsibility for the debt consolidation loan. As the borrower, you are risking someone else’s finances as well as your own.

4. Apply or Find an Alternative

If you qualify for a debt consolidation loan that makes sense for you financially, begin the application process. If you don’t receive any offers, start considering debt consolidation loan alternatives — or revisit step 1 and begin building up your credit score even more before applying again.

Where to Get a Debt Consolidation Loan With Bad Credit

So you know what it takes to qualify for debt consolidation loans, but where do you even start your search? Here are a few places to look for a debt consolidation loan with bad credit:

Banks and Credit Unions

Often, borrowers will find the best debt consolidation loans at their own local banks or credit unions (or online financial institutions). Because borrowers already have a history with their banks or credit unions, they are likely to be more flexible with an approval.

If you are a member of a physical bank or credit union, schedule an appointment to talk with a loan officer about your options. You should be able to have an informal conversation without an impact on your credit score, and they can let you know what rates and terms you may qualify for.

Even if you bank exclusively online, most online financial institutions offer personal loans. You can chat online or through the bank’s mobile app, but you’ll learn more by calling and speaking with a customer service representative.

Online Lenders

Today, the market is saturated with online lenders willing to offer loans for bad credit borrowers. These lenders run the gamut from highly respected, trustworthy institutions to more shady lenders known for easy approvals but high interest rates.

We recommend sticking with lenders with strong online ratings on sites like Better Business Bureau and TrustPilot. In fact, we have a list of the best personal loans for fair credit (580 to 669), which is a good place to start your research.

Online Consolidation Loan Lenders at a Glance

Online Lender APR Range Loan Amounts Min. Credit Score


3.99%-35.99% APR

$1,000 to $50,000

300 (insufficient credit history accepted)


5.94% to 35.97%

$1,000 to $50,000


Rocket Loans

5.97% to 29.99%

$2,000 to $45,000



5.99% to 24.99%

$2,500 to $25,000

Not disclosed


7.04% to 35.89%

$1,000 to $40,000


Best Egg

5.99% to 35.99%

$2,000 to $50,000


Navy Federal Credit

7.49% to 18.00%

$250 to $50,000

Not disclosed


9.95% to 35.99%

$2,000 to $35,000



9.99% to 35.99%

$2,000 to $36,500


All of the lenders on our list allow early payoff without prepayment penalties, and all but one (Navy Federal) allow you to pre-qualify without a hard credit inquiry.


Upstart is the best overall fair credit loan — and it’s great not just for borrowers with fair credit but also poor credit or no credit history at all.

That’s right, Upstart approves loans for borrowers with bad credit as low as 300 (the minimum credit score), but they’ll also consider borrowers who have nothing on their credit report.

We also like the small loan amounts and next-day funding offered by Upstart.

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Like Upstart, Upgrade caters to all bad credit borrowers, not just those with fair credit. Upgrade considers credit scores as low as 560 and promises next-day funding. You can get a loan as small as $1,000 through Upgrade.

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Rocket Loans

Rocket Loans can actually do same-day funding, but the minimum credit score requirement is on the higher end: 640. We like that APRs top out under 30%, but borrowers with lower scores on their credit report will have trouble qualifying.

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Discover is one of only two online lenders on our list not to charge an origination fee. But for the lack of origination fees and lower max APR (24.99%), you’ll need a stronger credit report.

Discover does not disclose its minimum credit score and also considers annual income and DTI when making its decisions. Though Discover has been known to award loans for bad credit borrowers, these are harder to come by.

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With a minimum credit score requirement of just 600, LendingClub is one of the more attainable debt consolidation loans. You can get a loan as small as $1,000 through LendingClub, where the average APR is 15.95%. (Borrowers with bad credit should expect to pay more.)

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Best Egg

Best Egg continues to impress because of its great customer satisfaction scores. Though the max APR is high and we’re not in love with the origination fees, we appreciate how easy it is for borrowers with bad credit (minimum score of 600 required) to get a loan as small as $1,000 to consolidate debt.

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Navy Federal Credit Union

No origination fees and a low max APR (18%) make debt consolidation loans from Navy Federal appealing. The downside? You must be a member of the credit union, and you can’t get pre-qualified. That means you’ll have to take the hit to your credit score to seek approval.

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Avant has one of the lowest minimum credit score requirements at 580 and can also promise next-day funding. The APRs tend to be high, however, and the flat 4.75% administration fee can be a barrier.

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LendingPoint also has a 580 credit score requirement and an easy application process. This is more obtainable for borrowers with bad credit, but the APR and origination fees will likely be high.

Get Details

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Debt Consolidation Loan Alternatives

A debt consolidation loan is a great solution for managing massive credit card debt, but not everyone will be able to get approved. Here are some other ways to consolidate debt:

Balance Transfer Credit Cards

Balance transfer cards operate along the same lines as a debt consolidation loan. You open a new credit card (or use an existing one) with a lower APR to pay off all your high-interest debts.

But remember: It’s still a credit card, which comes with some inherent risks. Explore if a balance transfer card makes sense for you.

Home Equity Loan

If you are a homeowner, you have another option. Applying for a home equity loan or a home equity line of credit (HELOC) allows you to use your home as collateral to obtain funds to pay off higher-interest debt.

Because you are risking your most important asset (i.e., your home), it is important to only take out a home equity loan if you are confident you won’t miss any monthly payments.

Friends and Family

If you are drowning in debt and can’t feasibly take on a debt consolidation loan to get out, you can always ask friends and family for help. Borrowing and loaning money can be a difficult topic even for close friends and family, so approach the conversation respectfully and be ready to hear (and accept) a lot of rejections..

Debt Management Plan

A debt management plan (DMP) is an offering from an agency accredited by the nonprofit National Foundation for Credit Counseling (NFCC) or Financial Counseling Association of America (FCAA). If you participate in the program, the agency will handle your multiple monthly payments, and you’ll make a single payment to the agency.

This will result in a note on your credit report, which could make it harder in the future to get approved for a loan.

Credit Counseling

Though some credit counselors offer limited services free of charge, most require a fee. For that fee, they will offer advice about your credit score with concrete steps you can take to improve it. As part of their services, some counselors may help you set up a DMP.

More Serious Options

If none of these options work for you, resist the temptation to take out a payday loan. Payday loans have APRs in the triple or even quadruple digits and are intensely predatory. Instead, consider one of these options:

Debt Settlement

You can work with a debt settlement company, like Freedom Debt Relief or National Debt Relief, who will advocate on your behalf with creditors in an attempt to lower your overall debt.

However, you have to pay for these services (which aren’t guaranteed to work). If you are spending your money paying for debt settlement, you are likely not paying on your outstanding debt, so you risk falling further behind and even defaulting.


Filing for bankruptcy comes with serious consequences and should be your absolute last resort. When you file for bankruptcy, you are essentially surrendering all your wealth and assets and doing serious damage to your credit report for the next decade.

But it will get you out of most debt (student loans are immune to bankruptcy — just one of their many quirks) and give you a chance at a fresh start. Having the support of family and friends, especially as you look for a place to live, is often crucial to success when filing for bankruptcy.

How to Stay on Top of Your Debt Consolidation Loan

If you have gotten approved for a debt consolidation loan and it’s just been funded, congrats! But don’t rest on your laurels just yet. There’s a lot of hard work ahead to repair your credit score and get out of debt:

1. Pay Off Your Debts Immediately

As soon as your bank account is funded, take that money and pay off your credit card debts in their entirety if possible. If the loan can’t completely cover all debts, pay off balances on the debts with the highest interest rates first.

2. Make a Budget

If you aren’t already using budgeting software or even a basic spreadsheet to manage monthly payments and income, start now. You’ve just taken this big step toward repairing your credit; the last thing you want to happen is not having budgeted enough for a payment and your loan defaulting.

3. Set Up Automatic Payments

Make sure you don’t miss a payment by connecting your new loan to a checking account that is always funded with enough to make your monthly payments. You may even be able to increase your monthly payment amount to pay extra on the principal and pay off the loan early.

4. Change Your Credit Habits

This will be difficult, but resist the temptation to use the credit cards you’ve just paid off. Having those open lines of credit at a $0 balance will do wonders for your credit score, but it can be so easy to fall back into a vicious cycle of debt with a single swipe of the card.

Contributor Timothy Moore is a writer and editor in Cincinnati who focuses on banks, loans and insurance for The Penny Hoarder. His work has been featured on, The Ladders, Glassdoor, WDW Magazine, Angi and The News Wheel.