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How To Consolidate Debt With Bad Credit

Getting Out of Debt is Tough – But Not Impossible

Let’s be real; dealing with debt sucks – especially when you’ve got bad credit. It can feel like you’re stuck in this never-ending cycle of paying the minimum, getting hit with late fees, and watching that debt just keep piling up. But here’s the thing, it doesn‘t have to be that way.Consolidating your debt is one way to get that debt under control and start paying it off for good. And yes, it is possible even with bad credit. It might take a bit more work, but we‘re going to walk through some solid options that can help you get on top of those bills once and for all.

What is Debt Consolidation Anyway?

Okay, let‘s get on the same page first. (this is on Debt consolidation basically means taking out one new loan to pay off all your other debts. Instead of juggling multiple payments to different lenders every month, you just have one payment to make. It can:

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  • Lower your interest rates
  • Reduce those pesky late fees
  • Simplify your money management

The goal is to score a lower interest rate than what you‘re currently paying so more of your payment goes towards the actual debt, not just interest. That way you can get out of debt faster and for less cash.

Your Credit Score Matters (But Not as Much as You Think)

I’m not going to lie to you, having bad credit does make debt consolidation trickier. But it‘s definitely not a lost cause. Your credit score plays a big role in determining what interest rates and loan amounts you qualify for. A higher score means better rates and terms.But here’s the thing – even with a poor credit score, there are still consolidation options out there. You might have to accept a higher interest rate or put up some collateral, but getting that debt consolidated into one simple payment can still be worth it.The key is looking at all your options and crunching the numbers to make sure a debt consolidation loan actually saves you money in the long run compared to just continuing to pay all your current debts separately.

Debt Consolidation Loan Options for Bad Credit

When it comes to consolidating debt with bad credit, you’ve got a few potential paths to explore:

Personal Loans for Bad Credit

Personal loans from banks, credit unions or online lenders are a popular debt consolidation option. They can allow you to pay off credit cards, medical bills, payday loans – pretty much any unsecured debt you’ve got.Now, getting approved for one of these personal consolidation loans with bad credit isn‘t easy. But it‘s not impossible either. You’ll likely need:

  • A credit score of 600+ (though some lenders will go as low as 500)
  • Proof of steady income and employment
  • To put up some collateral like a car or home equity

The upside is that even “bad credit” personal loan interest rates are usually way lower than what you’re paying on credit cards. You can score rates in the 10-30% range in many cases.Some solid personal loan lenders to check out include Upstart, Avant, and LendingPoint. Or hit up a local credit union – they can have great rates.

Home Equity Loan or HELOC

If you‘ve got some equity built up in your home, doing a home equity loan or line of credit can be an awesome way to consolidate debt. Home equity loans typically have stupid low interest rates in the 3-5% range.The catch? You’re putting your home up as collateral. If you can’t repay that consolidation loan, the lender can foreclose on your house. It’s a risk, but one that might be worth it for the interest savings.

Balance Transfer Credit Cards

For smaller amounts of credit card debt, a balance transfer card could be the move. These allow you to transfer all your card balances to one new card with a low promotional interest rate for 12-18 months. Rates like 0% are common during that intro period.Just know that you’ll need decent-ish credit (think a score of 670+) to qualify for one of these balance transfer cards. And that low rate is only temporary – it‘ll shoot up once the intro period ends. But it gives you a window to aggressively pay down the balance.

Borrowing From Your 401(k)

I know, I know – borrowing from your retirement fund sounds crazy. But hear me out. If you’ve got a 401(k) through work, you may be able to take out a loan against it to consolidate debt. The interest you pay just goes back into your own account.The rates on these loans are usually pretty decent. And you‘re paying yourself back instead of a bank. There are some risks involved though, like fees and potential taxes if you leave your job before repaying. But it can be a decent last resort option.

Credit Counseling Services

If your credit is really in the dumps, you may need to look into credit counseling services. These are non-profit organizations that can help you consolidate your debt into one monthly payment, even with terrible credit.The catch is that you have to enroll in a debt management plan where you make a single payment to the counseling agency each month. They then disburse that payment to all your creditors on your behalf.It can stop collection calls and potentially reduce interest rates and fees. But your credit does take a temporary hit from the debt management plan being noted on your reports.

How to Increase Your Chances of Getting Approved

Okay, so those are some of the top options for consolidating debt with bad credit. But what if you’re getting denied left and right? Here are some tips to improve your chances:

  • Check your credit report for errors and dispute any mistakes
  • Ask someone with good credit to co-sign the loan with you
  • Put up collateral like a car, home equity, investments, etc.
  • Pay down some existing debt to improve your credit utilization ratio
  • Increase your income through a side gig or new job
  • Apply for loans from credit unions and community banks

The better your overall financial picture looks, the more likely you are to get approved for a decent debt consolidation loan or balance transfer card.

Pros and Cons of Debt Consolidation

Before we wrap things up, let’s quickly go over some of the biggest pros and cons of consolidating your debt:


  • One simple payment instead of juggling multiple bills
  • Potential for lower interest rates and fees
  • Debt becomes more manageable and structured
  • Improves cash flow with lower monthly payments
  • Stops collection calls and letters


  • Extending your repayment timeline
  • Putting up collateral like your home
  • Upfront costs like balance transfer fees
  • Temporarily dings your credit score
  • Doesn’t fix the root overspending issues

At the end of the day, debt consolidation can be a great tool for getting out of debt – but it’s not a magic cure-all. You’ve still got to put in the work of making those payments on time each month.

The Bottom Line on Consolidating Debt With Bad Credit

Look, dealing with debt sucks – especially when your credit score is in the gutter. But don’t let that crummy number discourage you from exploring debt consolidation.While it’s harder to qualify with bad credit, it’s definitely still possible. You’ve just got to get creative and be willing to put in some extra effort. From personal loans to balance transfers to credit counseling services, there are legit options out there.The key is doing your research, crunching the numbers, and choosing the path that saves you the most money in the long run. It might not be easy, but consolidating that debt into one simple payment can be a game-changer.

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