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How to Consolidate Debt with Bad Credit

Jessica Cotzin Updated: June 26, 2023 • 4 min read
Women Considering debt consolidation with bad credit

Taking out a personal loan to consolidate debt is a great way to simplify payments and save money by getting a lower APR. Even if your credit score isn’t in the best shape, you can still consolidate your debt, it just may take a bit more shopping around.

In this article, we are going to look at some tips for comparing bad credit loans as well as examine various options for debt consolidation comparing bad credit loans.

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5 Ways to Consolidate Bad Credit Debt

The following methods for consolidating debt are available to everyone, even those with poor credit. In the next section, we’ll cover how you can increase the chances of getting approved for a debt consolidation loan even with a low credit score.

Personal loan

Using a personal loan to consolidate debt is the most popular debt consolidation option. It involves taking out a personal loan to pay off your other debt sources, essentially rolling all your debt into one monthly payment. The idea is to secure a lower APR than what you were already paying, which would save you money.

A debt consolidation loan is basically the same thing as a personal loan but has a few extra perks designed for debt consolidation, like transferring the loan funds directly to your creditors.

0% APR balance transfer card

This is a credit card that lets you transfer over your debt (unsecured, like credit card debt). A balance transfer card is an attractive option because they typically have a 0% APR introductory period ranging from 6-12 months where you don’t pay any interest. 100% of your payments go towards paying down your debt.

Some lenders will charge fees and have high APRs once the intro period is over, so always shop around and read the fine print to see if it’s worth it.


Another way to consolidate debt is to tap into your retirement account. Most plans, like a 401(k), will allow you to borrow money against them, but this can come with some drawbacks, like paying early withdrawal fees and penalties. Additionally, losing your job would mean you’d have to pay back the funds you withdrew in 60 days.

Home Equity

You can also tap into your home’s equity by taking out a home equity loan or a home equity line of credit to pay off your debt, but this shouldn’t be your first or even second choice. While these loan types offer lower APRs and high borrowing limits, defaulting on your loan could mean facing foreclosure.

Debt Management Plan

A debt management plan isn’t a loan, but rather a debt plan offered by credit counseling agencies. It combines your debt and cuts down your interest rate. In return, you’ll be put on a repayment plan of 3-5 years where you won’t be able to open any new lines of credit.


Tips for Consolidating Debt with Bad Credit

If you’re still working on improving your credit, don’t sweat it. There are still a few ways you can get the best rates possible for a debt consolidation loan.

  • Add a cosigner. If you have poor credit, adding a cosigner with good to excellent credit to your personal loan application will help improve your chances of getting approved, and with a lower APR. Just keep in mind that not all lenders will allow you to add a cosigner.
  • Check your credit report online. It’s worth checking your credit report to see if there are any mistakes or errors that could hurt your chances of getting a personal loan for debt consolidation. You’re entitled to a free credit report each year from any of the three credit bureaus: Equifax, TransUnion, or Experian. This report will also give you a clearer picture of your financial history and includes things like late payments, credit report inquiries, bankruptcies, and more information.
  • Work on your debt-to-income ratio. If you’re not in a rush to bad credit debt consolidation, it’s worth it to spend some time improving your debt-to-income ratio. Paying off your smaller debt sources will make a big difference and could help you get a better rate when applying for debt consolidation loans.
  • Start shopping. It’s worth taking the time to shop around and compare rates from several lenders. To save time, use an online lending marketplace like Credible or Fiona. These allow you to submit one short pre-application that will immediately tell you if you’re pre-qualified with any of their network of lenders. It won’t hurt your credit and some of these lending platforms will let you add a cosigner.
  • Check with your credit union. A good place to start on your search for debt consolidation loans is with a credit union. These are not-for-profit financial institutions and are known for having less strict requirements when applying for loans. Many offer competitive rates and charge no fees.
  • Get online. You may be used to shopping for your financial products in person at your local brick and mortar, but you’re missing out if you’re not also checking rates with online lenders. There are tons to choose from, many of which are reputable companies that have been in the lending game for years. Rates may be higher, especially with a low credit score, but many online lenders are more flexible when it comes to requirements.

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Final Thoughts

When it comes to consolidating debt with bad credit, it may require some shopping around, adding a reliable cosigner, or working on improving your creditworthiness, but just know that there are options available.

Start shopping online today and compare lenders to find the best rates.
Best Debt consoliodation

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Written by Jessica Cotzin

Jessica Cotzin is a writer and the Lendstart authority on small businesses and personal loans. She has been writing about personal finance and the loans industry for a number of years, and holds a bachelor’s degree in journalism from Florida Atlantic University.