Can I Get a Consolidation Loan If I Have Bad Credit?

For people with piles of credit card debt, medical expenses, car payments and other expenses, it can be frustrating and scary figuring out how to pay the bills every month. Debt consolidation loans are often held out as a solution that can fix everything by lowering interest rates and simplifying a lot of debt into a single monthly payment.

The good news is that, for the most part, that’s all accurate. These loans make it possible for many individuals to get back on track financially and pay off several different debts all at once. But, there’s a downside: not everyone qualifies for a debt consolidation loan. If you have less-than-stellar credit, you could find yourself up against the same issues you’d have with any other loan: you get turned down because you’re viewed as being at risk of not paying it back.

It probably feels like a paradox: you need a debt consolidation loan to pay off your debt and build up a better credit history, but you won’t be eligible unless you already have a better-than-average credit score. Is all hope lost if you have bad credit and you want a consolidation loan?

Fortunately, you may still be able to take advantage of debt consolidation, even if your score could use some work. Be aware that it’s not going to be as easy for you, but there are options. Here are several things to look for, to find a lender that is willing to work with your particular situation.

First, look for a lender that will consider more than just your credit score when determining your eligibility for a debt consolidation loan. While it’s true that most traditional lenders focus heavily on your credit history, some of the newer partners on the market also factor in your income, education, and job history to qualify you for a loan.

Next, determine if you’re willing to offer up collateral to secure your consolidation loan. Some lenders will lend you the money if you “secure” it with your car, home or other significant asset. Of course, this is a much riskier strategy - because if you default on your consolidation loan, you have a lot more to lose!

Finally, analyze your current debt situation and figure out how much you’re paying in interest. Some lenders have no problem with issuing consolidation loans to people with bad credit - but they charge really high interest fees in exchange for taking on the risk. Still, depending on the rates you’re already paying, you could still save money if the consolidation loan has interest rates that are lower. But, you absolutely need to do the math to determine what rate would make sense, so that you don’t wind up actually spending more on interest with your debt consolidation.

In summary, it is possible to get a debt consolidation loan if you have bad credit. However, you’ll probably have to work a little harder to find a lender that will take into account your full financial picture, and to ensure that any loan you accept will genuinely save you money in the long run. It’ll take some effort, but it could be well worth it if it helps you simplify your debt situation, reduce your interest rates, and develop a plan for staying out of debt in the future.