How to Consolidate Credit Card Debt With Bad Credit

Debt consolidation loans for bad credit exist, but improving your credit score gives you more options.

Advertising & Editorial DisclosureLast Updated: 8/17/2022
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Last Updated: 8/17/2022

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.

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MoneyGeek’s Takeaways

You can consolidate credit card debt by getting a debt consolidation loan or a secured loan.

You need to have a credit score of 650 or higher to qualify for most debt consolidation loans.

Improving your credit before applying for a debt consolidation loan might result in a lower interest rate.

How Can You Consolidate Debt With Bad Credit?

The most common way to consolidate debt with bad credit involves getting a debt consolidation loan. However, the possibility of qualifying for one reduces significantly if your credit score is below the 580 mark. In this case, you could consider getting on a debt management plan through a credit counseling agency. Getting a secured loan might be an option if you can provide some form of collateral, such as home equity or an automobile.

The balance transfer vs. debt consolidation comparison tilts in favor of the latter when it comes to bad credit. This is because you typically need good credit to qualify for a balance transfer credit card.

Managing your finances well and improving your credit score open up more options. No matter which type of debt consolidation solution you choose, you need to follow similar steps.

1

Monitor your credit reports

The top three credit bureaus in the country — Experian, TransUnion and Equifax — give you free access to your credit reports once a year through AnnualCreditReport.com. Go through each one carefully and look for errors or discrepancies that might have caused your credit score to drop. If you find any, contact the credit bureau to dispute the error online or by mail. Fixing errors might help improve your credit score. Even a small improvement might give you access to more options for consolidating your debt.

2

Improve your credit

Make all your payments on time and reduce your credit utilization ratio, as both play important roles in the calculation of your credit score. Credit utilization ratio refers to the amount of credit you’ve used from your total revolving credit limit and should ideally be lower than 30%. If you have four credit cards with a combined credit limit of $5,000 and have used $4,000, your credit utilization ratio stands at 80%. To bring it down to 30%, you’ll need to reduce the total outstanding balance to $1,500.

3

Think about applying with a cosigner

One way to qualify for a debt consolidation loan with bad credit is to apply with a cosigner who has good credit and meets your chosen lender’s credit score requirement. In this case, the cosigner bears equal responsibility for the loan’s repayment. If you fail to make payments on time or default on the loan, it could hurt affect the cosigner’s credit score.

4

Compare your options

Compare the bad credit debt consolidation loans you come across based on factors such as interest rates, fees and payment flexibility. Several lenders inform you of estimated interest rates through a prequalification process that does not affect your credit score. You may also want to include credit unions and online lenders in your search because they tend to have more flexible requirements when compared to big banks.

5

Consider getting a secured loan

Getting a secured loan with bad credit might be possible because you provide some form of collateral that the lender may take possession of if you default on your loan. Given the risk involved, consider getting a secured loan only if you’re sure you’ll be able to make payments on time. For instance, defaulting on a home equity loan can result in you losing your home. This is also the case if you use an automobile or an expensive artifact as collateral.

What Credit Score Do You Need for a Consolidation Loan?

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.

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Pay attention to the different types of fees you might need to pay. These can come in the form of application fees, loan origination fees, returned check fees, late payment fees and prepayment penalties.

Does Credit Consolidation Ruin Your Credit?

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.

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Instead of waiting to pay your credit card bill on the due date, make multiple smaller payments throughout the month. This lowers your average daily balance and the amount of interest that you'll pay. Following this strategy will help you pay off your debt sooner and improve your credit score. — Lee Huffman, credit card expert at BaldThoughts.com

Other Questions You May Have About Cards for Bad Credit

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.

Next Steps

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.

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About the Author


Rajiv Baniwal has been writing about different financial topics for over 15 years. Meticulous in his research, he makes sure he provides accurate and up-to-date information. His areas of expertise include mortgages, personal loans, credit cards, insurance and international money transfers.


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