Four Debt Consolidation Loan Options for Bad Credit

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Finding debt solutions when you have bad credit is tough. Borrowing money, even to consolidate debt, usually requires that you have a good credit score. Debt consolidation loan options for bad credit do exist, but the pricing and terms may not be as attractive. Spend some time shopping around to find the best terms you can qualify for. Avoid choosing a bad loan out of desperation––it could end up costing you more in the long run.

Compare Debt Consolidation Loans

Use a service like to search for lenders who offer loans to consumers with your credit score. A loan comparison service will show you options from multiple lenders and allow you to compare the terms.

Be prepared for options with higher interest rates. APRs on debt consolidation loans for bad credit can be as high as 36 percent in some cases, which makes consolidating your debt expensive. You can expect loan terms to range from 24 to 60 months. The longer your repayment period, the lower your payments will be, but the more interest you’ll pay.

For example, a $10,000 loan at 35.99 percent APR repaid over 5 years would have a monthly payment of $361.27. You’d pay more than double that amount in interest––$11,676 to be exact. If your credit score only allows you to qualify for high interest rate loans, it's best to consider other options.

Use Peer-to-Peer Lending

Peer-to-peer lending uses crowdfunding to allow you to borrow money from individual investors. These investors personally review your profile and application and decide whether to lend to you. Your loan request may be fulfilled by multiple investors, but you’ll still only have to make a single payment each month.,, and Upstart are a few peer-to-peer lending platforms you can consider to access a debt consolidation loan with bad credit. Like other loan comparison sites, peer-to-peer lending networks present you with multiple options to compare and choose from. Some even let you check your rates without doing a hard pull on your credit.

Transfer Balances to a New Credit Card

It’s difficult to qualify or a zero percent balance transfer credit card when you have bad credit. You may, however, be able to transfer balances to an existing credit card if you have enough available credit. Even if you don’t get the benefit of a lower interest rate, consolidating credit card balances makes it easier to pay off your bills. The more you can combine your balances, the fewer payments you have and you can focus on paying off fewer debts.

Tap Into Your Home Equity

One of the benefits of ownership is the ability to tap into the equity you’ve gained over the years. Depending on the method and the lender, you may be able to tap into 80 to 90 percent of your home’s equity to consolidate your debt.

Home Equity Line of Credit

A home equity line of credit is a line of credit that’s secured by your home. During the initial years of your HELOC, you’re only required to make monthly interest payments on the credit line. Once this “draw” period is over, you’ll have a set amount of time to pay your outstanding balance in full. The lender will consider your debt, income, and credit when you apply for the HELOC.

Second Mortgage

A second mortgage is a new loan, separate from your primary mortgage, based on the equity you have in your home. Second mortgages are riskier and tend to have higher default rates, so they carry higher interest rates than primary mortgages. This is something to consider when you’re weighing your options.

Cash Out Refinance

With a cash out refinance, you refinance your mortgage into a new one, taking out the equity you’ve earned as cash. You can then use the cash to pay off your debts. The benefit of a cash out refinance is that you continue paying on just one loan rather than taking on an additional type of debt. The lender will consider your credit score, your debt, and your income when you’re applying for the cash out refinance.

Compare the interest rates, loan terms, and monthly payment amounts to decide which option may be the best for you. You want to keep your interest rate and payments as low as possible so you don’t put additional strain on your finances.

When you consolidate your debt with your home equity, you’re putting your home on the line. If you’re unable to make payments on any of your home-based loan products, you risk foreclosure.

Beware of Debt Consolidation Scams

As you shop your options, make sure you stay aware of debt consolidation scams. Any loan that guarantees approval or asks you pay money before you’ve applied is likely a scam. Do the proper due diligence to avoid being taken advantage of.