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There Are Debt Consolidation Loans For Bad Credit – Here’s How To Get Them

You have a lot of debt and you don’t know how to pay it off. You have considered taking out a personal loan to consolidate your debt, but it is difficult to find debt consolidation loans for bad credit.

And if you’ve been having trouble paying off your debt, you may have damaged your credit score. The very reason why you need a consolidation loan could also be the reason why you cannot get one. Here is an overview of resources that can help you if you need a bad credit debt consolidation loan.

Debt Consolidation Loans and Credit Ratings

Borrowers can use a debt consolidation loan to pay off their debts and replace them with a single loan. The new loan is a chance to lower monthly payments or find a cheaper interest rate.

But qualifying for a new loan with bad credit is tricky. Loan seekers will need a credit score of at least 600 – and often mid-600s or higher – for easy approval and low rates.

With a credit score lower than that, it will take some work to find loans that you qualify for. Expect to accept some tradeoffs, such as limited options for lenders and loan types, and higher interest rates or loan fees.

7 Ways To Qualify For Bad Credit Debt Consolidation Loans

A bad credit score will make it more difficult to qualify for a loan, but it is still possible to qualify for bad credit debt consolidation loans. Try the following to get the debt consolidation loan you need, even with bad credit.

1. Consolidate or refinance student loans with bad credit
2. Try out lenders with low minimum credit scores
3. Consider a debt consolidation loan with a co-signer
4. Check with a credit union
5. Non-profit debt consolidation
6. Secured loan
7. Work on your credit and try again later

1. Consolidate or refinance student loans with bad credit

Yes, student loan consolidation for borrowers with bad credit is possible.

Student loans are much more difficult to eliminate than other debts and have historically been difficult to pay off in bankruptcy. For lenders, this makes student loans a less risky form of debt. For borrowers, this can mean lower and more flexible credit requirements to qualify for student loan refinancing.

Lenders such as First Republic, for example, do not have minimum credit requirements for refinancing student loans. They will review your credit score, but they will also review your application based on criteria such as your income and your co-signer, if you have one.

It is possible to refinance student loans with bad credit, but if you have student debt, you will want to consider other options as well. Federal loan consolidation could help, as well as income-driven repayment plans.

2. Try out lenders with low minimum credit scores

If your credit rating is low, don’t automatically assume that you can’t get a loan. Lenders have different credit requirements, and many are willing to consider lending to those with bad credit.

With some research, you can find a bad credit debt consolidation loan.

LendingPoint, for example, offers unsecured personal loans to borrowers with a credit score as low as 585. Be sure to read lender reviews and choose a reputable lender. Also, keep in mind that a lower credit score can lead to higher interest rates.

3. Consider a debt consolidation loan with a co-signer

Many lenders won’t offer debt consolidation loans to people with bad credit, but they might approve your loan application if you have a co-signer or co-borrower with good credit.

To get a debt consolidation loan with a co-signer, you will need two things: a willing partner and a lender who authorizes co-applicants. Some lenders, but not all, allow co-signers for their personal loans.

See if a partner or family member who has good credit is willing to co-sign the loan, and you will have a better chance of approval on bad credit debt consolidation loans.

4. Check with a credit union

Credit unions are non-profit financial institutions that focus on serving a community. Credit unions often offer less conventional products, including debt consolidation loans for people with bad credit. Members often get the lowest rates when borrowing from a credit union.

Check with local or national credit unions to see what options they offer for your credit score. Some credit unions with personal loans may design their product specifically for borrowers with poor credit.

Credit union loan officers also often have more of a say in the underwriting process, so you can make your case in front of a human instead of getting an immediate rejection from a computer algorithm.

5. Non-profit debt consolidation

In addition to credit unions, there are non-profit organizations dedicated to helping people manage and get out of debt. These nonprofit debt counseling agencies often offer free credit counseling and debt assistance.

Find a nonprofit debt counseling agency in your community or that provides service nationwide. You need to check its nonprofit status, 501 (c) (3).

Once you log into these services, many of them will have a credit counseling session to explore your debts and repayment options. They might be able to put you in touch with lenders who offer bad credit debt consolidation loans.

Some also offer internal debt consolidation through a debt management program. The nonprofit may even negotiate with lenders on your behalf to reduce rates or write off some of your balances. However, you will likely need to pay an additional service fee to set this up, as well as an ongoing maintenance fee.

6. Secured loan

If you have assets, you might want to consider borrowing against them with a secured loan to consolidate your debts. With a secured loan, your assets, such as a car or the equity in your home, are collateral that the lender uses to secure the loan.

A secured loan has the obvious downside of putting your property at risk. If you default, your lender can foreclose on your property to settle the debt. But it also lowers the risk of the lender so it is much easier to get approval for a debt consolidation loan with bad credit.

It’s worth considering other options first: for example, you could sell your car and use that money to pay off your debts. But if you’d rather keep the car, a secured loan can help you borrow the funds you need to consolidate your debt while still retaining the property – of course, you’ll have to pay off your loan, or you could end up losing it.

7. Work on your credit and try again later

Finally, you can still spend some time repairing your credit and try again in a few months. If you can increase your credit score by 30 or 50 points, you could increase your chances of getting approved for a debt consolidation loan.

If your credit score is near average (600 to 650), you might want to focus on rebuilding credit.

André Pentis contributed to this report.


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