What Are The Best Debt Consolidation Loans For Bad Credit?

Debt consolidation loans are a helpful tool for people who are struggling to make their debt payments. It can lower their monthly debt costs and eliminate the need for people to juggle different repayment schedules with multiple lenders. But there aren’t that many viable debt consolidation loans for bad credit. Most lenders are less willing to work with people who have credit below a certain threshold. Here are the best ways to get around that problem, including which lenders to work with specifically.

Can You Get a Debt Consolidation Loan With Bad Credit?

Yes, people with bad credit can pull off debt consolidations. There are always options out there, even for those with scores that are well below average.

But it will take more work, patience, and a willingness to use non-traditional lenders. Even then, there’s no guarantee the terms will be as favorable as they would be for people with better scores.

But before people accept that their bad credit is a given, they should take the following steps to help them qualify for a consolidation loan:

  • Check their credit report for errors and dispute any they find
  • Try to reduce their debt balances as much as possible, perhaps with the debt snowball or debt avalanche methods
  • Boost their debt-to-income ratio however they can, including looking for ways to increase their income

Lenders primarily use credit scores to judge someone’s creditworthiness, but other factors play a role too. People shouldn’t give up on getting a loan because they have bad credit. They should highlight their other qualities to make their applications seem more appealing to lenders.

How Does Debt Consolidation Work?

Debt consolidation is a debt relief strategy that uses a single new credit account to pay off multiple older ones. It can lower a borrower’s total monthly payment, usually at the cost of extending their repayment terms.

It also means that people only have to worry about one payment at a time instead of keeping track of three or four. That makes people a lot less likely to forget to pay.

The new credit account is usually either an installment loan or a balance transfer credit card. Both will work as long as the borrower can keep up with the monthly payments after the consolidation. Balance transfer cards are usually riskier in that regard because their interest rates tend to increase dramatically after a brief introductory period.

Unfortunately, it’s tough to qualify for installment loans or balance transfer cards with bad credit. Lenders usually want to confirm that people have at least “fair” credit scores before offering them a debt consolidation.

Under the FICO model, one of the most commonly used credit scoring models, anything between 580 and 669 is “fair” credit. Falling below that range will make it harder to qualify for debt consolidation through traditional means. Those people will usually need to look for alternative lenders who cater to borrowers with below-average credit.

Where To Get Debt Consolidation Loans For Bad Credit

People who probably won’t be able to qualify for a loan from a bank or traditional lender generally have two reliable sources for debt consolidation loans: credit unions and online lenders.

Both groups are more likely to offer accounts to people with bad credit, though there are significant differences between the two. Here’s what people should know about them before applying.

Credit Unions

Credit unions are not-for-profit financial institutions that cater to specific groups of people. They’re similar to banks in many ways, but only members of the credit union can access their services, including their loans.

For example, there are credit unions that serve:

  • Teachers
  • Geographical regions
  • Veterans
  • Members of local churches

Credit unions tend to offer fewer services than banks, and not all of them provide debt consolidation loans. Fortunately, there are so many credit unions that almost everyone can access at least one with the services they need.

And although credit unions tend to offer fewer services, they more than make up for it by charging lower fees and interest rates.

Members of a credit union can frequently qualify for a debt consolidation loan based on their employment, education, and relationship with the group. It’s easier to get a loan after being with the union for a while, so they’re usually the slower option.

Online Lenders

Online lenders are another great provider of debt consolidation loans for people with bad credit. 

While online lenders might not always be as lenient on credit scores as credit unions, they’re usually still more flexible than traditional banks. Some of them use alternative means of assessing a borrower’s creditworthiness, like a person’s education or occupation.

For example, Upstart uses a patented artificial intelligence system to approve their applicants. Their website claims that it leads to 27% more approvals than traditional methods.


Unfortunately, online lenders tend to be a bit more expensive than credit unions. Their interest rates aren’t quite as favorable, and they’re more likely to charge application or origination fees.

That said, there are almost as many online lenders as there are credit unions these days, so borrowers can typically find a good match if they shop around long enough.

Best Debt Consolidation Loans For Bad Credit

To help people get started on their search, we’ve put together a shortlist of the best debt consolidation loans for people with bad credit, including credit unions and online lenders.

1. Upgrade

  • Expected APR:  6.94% to 35.97%
  • Expected Principal Balances: $1,000 to $50,000
  • Expected Loan Terms: 3 to 5 years
  • Minimum Credit Score: 580
  • Fees: Origination fees

Upgrade is the most well-rounded option on this list. Their rates are competitive with a credit union, their principal balances are sizable, and they have flexible credit score requirements. They’re a good choice for someone who wants to take a balanced approach to debt consolidation.

However, they do have a significant origination fee, which can add to the cost of the loan. Make sure to take that into account when figuring out which lender has the best deal.

2. PenFed Credit Union

  • Expected APR: As low as 6.49% APR
  • Expected Principal Balances: Up to $20,000
  • Expected Loan Terms: Up to 5 years
  • Qualification Requirements: Membership (open to anyone)
  • Fees: None

Credit unions usually offer better deals than most online lenders, and PenFed Credit Union demonstrates that by having both the lowest rates and fees on this list. For people who don’t mind taking the time to get into a credit union first, this is probably the best option.

The only potential drawback is that their loan principal balances aren’t as large as the other two. For people with debts to consolidate that are above $20,000 in total, one of the other lenders would be better.

3. Upstart

  • Expected APR: 8.27% to 35.99%
  • Expected Principal Balances: $1,000 to $50,000
  • Expected Loan Terms: 3 to 5 years
  • Qualification Requirements: Uses non-traditional assessment methods
  • Fees: Origination

Upstart is probably the best option for people who worry that their bad credit scores are going to ruin their chances of getting a loan. They use an artificial intelligence program to judge creditworthiness instead of credit scores, which allows them to offer loans to far more applicants than traditional lenders do.

The downside is that their rates are not quite as favorable as the other two. But for those with bad credit who need a loan and are willing to pay a higher APR, it’s a good option to have.

How Can I Get a Loan With a 400 Credit Score?

With a credit score well below average, it’s going to be very difficult to qualify for a traditional consolidation loan. Even online lenders and credit unions may decline to work with people whose scores are as low as 400.

At that point, people have two general options. They can either:

  • Wait to build their credit
  • Use a personal installment loan

For the people who can pull it off, the first option is superior. Taking out expensive loans is always something to avoid, if possible. Unfortunately, most people can’t wait for months until their credit scores recover.

In that case, personal installment loans might be unavoidable. While the term “personal installment loans” can include a wide range of loans, it’s also what lenders use to refer to a specific product that’s somewhat akin to payday loans.

Many of the same lenders that offer payday loans offer installment loans, and the qualification requirements are usually similar. The difference is that installment loans are much more affordable. They allow borrowers to repay their balances in a series of installments over months, instead of at their next payday. 

Alternatives To Debt Consolidation Loans

Debt consolidation is a useful tool for people who need some breathing room on their monthly debt payments. But it’s not a perfect fit for everyone, and there are many times when other debt-relief options would be more effective.

These are some alternatives to debt consolidation loans that accomplish similar things but might suit some people better.


Loan refinancing is similar to debt consolidation, but it usually replaces loans on a one-for-one instead of combining several of them at a time. The focus is also usually not on decreasing monthly payments, but on lowering interest rates.

People with a single loan that they can’t keep up with shouldn’t be looking for a debt consolidation loan. They’d be better off with a refinance. It’s best to get one after the general interest rates go down or their credit scores go up enough to qualify for a significantly lower rate.

DIY Debt Management

DIY debt management isn’t necessarily an official form of debt relief since there are no third-party services involved, but it’s often both the cheapest and most effective way to get out of debt.

It involves:

  • Creating a strict budget to ensure that no more debt develops
  • Following a targeted debt repayment plan to aggressively reduce debt balances
  • Negotiating with creditors to work out a repayment plan, lower the interest rate, and maybe even settle some of the debt

DIY debt management is probably the first strategy people should try when they start to feel financial stress. It’s completely free and by far the lowest risk plan.

Credit Counseling

Credit counseling is one step above DIY debt management. People who lack the financial expertise or discipline to get control of their finances on their own can go to a credit counselor for help.

The best part about credit counseling is that it’s almost always a free service that non-profits and charities offer to people in need. It’s a useful tool for those who need that extra nudge to get on track.

Debt Management Plans

Debt Management Plans (DMPs) are also a service that credit counselors offer, but they’re not free. They’re typically the most drastic step a credit counselor can take, and it’s usually not something they recommend except as a last resort.

DMPs combine all the aspects of debt consolidations, DIY debt management, and credit counseling into one. The borrower only has to make one monthly payment to the credit counselor, who then pays the creditors. The counselor will also keep the borrower on a strict budget and attempt to negotiate better terms.

Weigh All The Options

Debt consolidation loans can give you the breathing room you need to catch up with your debt, but lowering your payments comes at a price. You will probably end up paying more over the life of the loan than you would have with the original plan. 

Don’t take out a debt consolidation loan if there’s a way to make the existing loans work. Try to manage your debts yourself or enlist the aid of a credit counselor.

But if those strategies don’t work, don’t feel bad that you have to consolidate your debts. It’s a much better and cheaper option than falling behind on your debt payments and damaging your credit.