How to Consolidate Credit Card Debt With Bad Credit

Even if you have bad credit, you may be able to combine your existing credit card debt by getting a debt consolidation loan. While most providers of such loans require applicants to have credit scores of 650 or higher, some offer debt consolidation loans to people with credit scores of 600 or slightly lower.

Getting a debt consolidation loan may affect your credit in different ways. For example, if your credit utilization ratio drops significantly, you may expect your credit score to improve. However, applying for a debt consolidation loan may cause your credit score to drop by a few points.

Other ways to consolidate credit card debt with bad credit include getting on a debt management plan or getting a secured loan.

• How Can You Consolidate Debt With Bad Credit?
• What Credit Score Do You Need for a Consolidation Loan?
• Does Credit Consolidation Ruin Your Credit?

It is common for providers of debt consolidation loans to require credit scores of over 650. Some lenders provide loans even to people who have credit scores as low as 580. If your credit score is below 580, the chances of getting a debt consolidation loan are slim.

Other than your ability to qualify for a loan, your credit score also affects the interest rate you get. For example, Upstart provides personal loans for debt consolidation with interest rates that vary between 3.09% and 35.99%. However, the lowest rates are usually only attainable if you have excellent credit. Those with poor credit can expect interest rates to be on the higher side.

When it comes to debt consolidation for bad credit, you might benefit by improving your credit score first. This will involve getting it to or above the 650 mark. Not only will this open up more options, but it might also result in you getting a lower interest rate.

Credit card consolidation for bad credit brings with it the potential to hurt your credit score in the short term and improve it over time. As a result, it’s important to know just what to expect if you tread this path.

When you apply for any new form of credit, a debt consolidation loan included, the lender runs a hard inquiry on your credit report that causes your credit score to drop by a few points. Adding new credit to your existing mix decreases the average age of your credit accounts, which also has a slightly negative effect on your credit score. New credit accounts for 10% when calculating your FICO credit score, and the length of your credit history accounts for 15%.

Since payment history makes up for 35% of your FICO credit score, if you keep making on-time payments toward your debt consolidation loan, your credit score will improve over time. In addition, a debt consolidation loan can help bring down your credit utilization ratio significantly. This is because a debt consolidation loan is not a revolving form of credit and is not factored in when calculating your credit utilization ratio. Once you move credit card debt to a debt consolidation loan, you may expect your credit utilization ratio to decrease and your credit score to improve.

If you manage your debt consolidation loan and other forms of credit well, you can expect to start seeing positive changes in your credit score within six to 12 months.

Going through answers to other commonly asked questions about debt consolidation loans for bad credit can help you decide if getting one might work well for you.

Now that you know how debt consolidation loans for bad credit work, determine if you might benefit by getting one. If you decide to move forward, compare your options across parameters such as interest rates, fees and flexibility in making payments.