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The average American has nearly $6,000 in credit card debt, and the overall credit card debt in America is over $910 billion, according to Experian®. One of the best ways to manage your debt is through consolidation, but getting a debt consolidation loan with bad credit can be difficult. If you’re wondering how to get a debt consolidation loan with bad credit, it’s still possible to get approved. Here, you’ll learn where to find debt consolidation loans for bad credit, tips for getting one of these loans and some alternatives.
Table of contents:
A debt consolidation loan is an unsecured personal loan designed to simplify the debt repayment process by combining multiple balances into a single fixed-rate loan. It can potentially allow you to secure a lower interest rate on your debts and may enable you to pay them down faster.
Depending on the lender, there may be different criteria for qualifying for a debt consolidation loan. Below are some of the more common requirements so you can prepare before applying for the loan:
To save time and money, it’s helpful to have a plan before applying for a debt consolidation loan. Remember, with some applications, the financial institution will run a hard inquiry credit check, which can lower your credit score even more. Having a plan beforehand will help you minimize the number of hard inquiries you initiate.
Being familiar with your credit report will help you find a loan that best fits your needs. When you know what kinds of items are on your credit report, you can know what you need to improve on to improve your odds of getting a loan. You can also identify whether there are any inaccurate items that are unfairly hurting your credit.
You’re entitled to one free credit report from each bureau (Equifax®, Experian and TransUnion®) per year, which you can obtain on the official AnnualCreditReport.com website. For a cost, you can also sign up for credit monitoring services from reputable credit repair companies like Lexington Law Firm.
Keep in mind that your credit score isn’t on your credit report. If you want to know your score, there are many ways you can check your credit score for free, such as requesting it from your bank or credit card provider. Ultimately, though, your credit score will be based on the information on your credit report, so we recommend starting by looking at your report.
You don’t want to jump on the first loan offer you see without weighing your other options. Every loan comes with different fees, interest rates and repayment amounts that you should consider carefully to ensure you’re getting the best possible deal.
In order to determine whether different loan offerings are the right fit for you, you should first crunch your current numbers so you know what you’re working with. Calculate how much you’ll pay in total for all your debts without a consolidation loan, including monthly payments and total interest costs. Then you can compare different loan offerings to your current number.
If you’re concerned about the hard inquiries damaging your credit score, many online lenders do soft credit checks, which don’t hurt your score.
Many consolidation loans are unsecured loans, which means they’re mainly assessing the risk of lending you money based on your credit score. Secured loans are different because they require collateral. Providing collateral to a lender reduces their risk because they have something of value that they’ll repossess should you not make payments.
Forms of collateral are typically a vehicle, a home or something else of high value. Be careful with these loans because the financial institution will seize these items if you don’t pay.
If possible, consider waiting to take out a loan until you improve your credit. You’ll have a wider range of options with much better interest rates, and you often won’t need to provide collateral.
There are many ways to improve your credit , but the amount of time it can take can vary depending on your circumstances.
A cosigner is someone else who cosigns to be added to a borrowed loan. If you have a family or friend with good credit willing to become a cosigner, it could boost your chances of being qualified for a debt consolidation loan with potentially better terms. Even if your credit score meets a lender’s minimum requirements to qualify for approval, a cosigner with a higher credit score could help you secure lower interest rates. Remember that the cosigner shares equal responsibility for the loan, so carrying out the terms of the loan will impact both of your credit scores.
There are many sources and lenders available for obtaining a loan, but local banks, credit unions and online lenders are a great place to start.
Local credit unions or small banks often offer more flexibility for those with poor credit. They also have loan officers available to you to determine what you qualify for and learn the details of different loan rates and terms.
If you’re a longtime bank or credit union customer, it may improve your odds of approval due to your history with them.
Online lenders offer the convenience of completing the entire process from start to finish online. They’re also a good place to look if you have bad credit because they’re often more likely to approve you for a debt consolidation loan than a traditional bank.
Another key perk of going through online lenders is that you can usually compare loan rates and terms without impacting your credit, unlike credit unions. However, the drawback is that debt consolidation loans for bad credit carriers usually have high interest rates and premiums when provided through an online lender.
Some of the online lenders who offer debt consolidation loans include:
It may seem counterintuitive to pull out another loan to manage your debt, but there are some significant benefits to acquiring a debt consolidation loan.
Once you acquire a debt consolidation loan for bad credit, it’s an opportunity to improve your credit score by making your payments on time. On the other hand, it can also harm your score if you don’t keep up with your payments. The following are some tips to ensure you can manage your loan.
The idea behind a debt consolidation loan is to take all of your debts and combine them into one to make the debt easier to manage and hopefully have a better interest rate as well. If you don’t work to pay off your debt first, it may be tempting to spend the money elsewhere.
It’s helpful to sit down and create a budget to make sure you can make your monthly payments. Some questions to consider when making a budget can include:
Anything you can do to save or bring in extra money helps you have additional funds to ensure you have enough to make your regular loan payments.
People with great credit use tools like automatic payments. Automatic payments are recommended because they’re convenient and can help you build credit and save money. Whether you use a local bank, credit union or online lender, see if you can set up autopayments to avoid any late fees or penalties.
This tip is different from tip #2, create a budget, because it’s for those who may have a habit of overspending. In the digital age, it’s easy to buy things you don’t absolutely need from different stores online or spend extra while you’re out and about. By overspending you may put yourself back into debt, so try to break these habits before they become a problem.
So far, we’ve gone over the pros and cons of debt consolidation loans and how to get them when you’re working with bad credit. Some of the downsides of the loan may be a reason to consider some of the following alternatives:
While we have discussed many aspects of how to consolidate your debt with bad credit, the following answers some frequently asked questions.
Yes. There are a variety of ways to consolidate your debt through local banks, credit unions or online lenders, but they may have higher interest rates due to your bad credit history.
The lowest credit score you can have to acquire a consolidation loan depends on the lender. According to WalletHub, you need a score between 580 and 680 to qualify for a loan and get a decent interest rate. However, you may be able to find loans with a score of 400. Be wary that these loans often come with very high interest rates, so it may be better to improve your score before getting a loan.
There’s no limit to how much debt you can have when looking for a consolidation loan. According to Wells Fargo, lenders are typically looking at your debt-to-income ratio, which should ideally be below 50 percent.
Getting a debt consolidation loan can make managing your debt a lot easier, but if you’re having difficulty finding a lender to approve your loan, it may be time to look into credit repair. Many people don’t realize it, but sometimes there are errors on your credit report lowering your credit score. The credit consultants at Lexington Law Firm are here to help you work on your credit. Together we’ll comb through your credit report for potential errors and challenge them with the credit bureaus on your behalf. To learn more about how we can help, contact us today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
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