Debt Consolidation Loan for Bad Credit

Advertiser Disclosure: Signaloans.com is an advertising-supported personal finance website. With the help from advertising we can support and maintain our website which gives us resources to create well-researched information and articles for our visitors. Read our full Advertiser Disclosure here.

Debt consolidation is one of the most common yet widely misunderstood methods of managing your finances. Although it’s aimed at making your debt more manageable, it can also be a complicated affair. A lot of people misunderstand it to be the elimination of debt. This notion is not entirely true, as we will discuss in a bit. A crucial part of understanding debt consolidation is that many other more delicate details and mechanisms are at work.

Debt consolidation loans are taken out for a variety of debt management. Whether it’s for credit card debt, mortgages, student loan debts, etc. consolidation loans are helping people get their life back on track. Today, we want to give you a comprehensive take on what it does and how you should use it. To start with, let’s look at what it really means to consolidate your debt.

Amounts
$1,000 - 35,000
Loan Terms
6 months to 6 years
Credit Check Type
Soft check
Min Credit Score
580
Bad credit
Allowed
Approval rate
High approval rate
Time for decision
Average 2 minutes
Type of service
Connector
Amounts
$500 - 10,000
Loan Terms
3 months to 6 years
Credit Check Type
Soft check
Bad credit
Allowed
Approval rate
High approval rate
Time for decision
Average 2 minutes
Type of service
Connector
Amounts
$500 - 40,000
Loan Terms
2 months to 5 years
Credit Check Type
Soft or Hard
Min Credit Score
580
Bad credit
Allowed
Approval rate
High approval rate
Time for decision
Average 2 minutes
Type of service
Connector
« Show more alternatives »

What are Debt consolidation loans for bad credit?

To put it simply, debt consolidation for bad credit is the action of taking out a loan with the intention of paying off your other liabilities, including personal debts. This consolidation of your debts implies that you’re now left with one significant commitment in place of multiple smaller debts incurred over time.

Essentially, what you are doing is bringing together two or more debts and turning it into one more considerable debt but with better payoffs. Here, better payoffs may mean a more favorable interest rate, better payback terms, etc. It’s a standard financial option for managing debts better, and people use it for a variety of liabilities.

The core elements of debt consolidation are thus:

  • Many loans into one – one loan to pay off other liabilities, generally unsecured loans.
  • Debt consolidation does NOT mean erasing your debts. There’s a lot of misinformation about mortgages and loans out there. And you should steer clear of any sources that claim to remove debts instantly through consolidation.
  • The whole point of debt consolidation is to merge your liabilities into one debt, which has better terms for you and is easier to manage. Your debts are now mobilized into more economical and favorable conditions.

How to get a debt consolidation loan with bad credit

Trying to secure a debt consolidation loan can be a tricky exercise because it involves a lot of moving parts. Now, if your credit score isn’t all that good, this can become an even more arduous task. So if you’ve ever wondered how to get a debt consolidation loan with bad credit, you’ve reached the right place.

To start, you need to get your credit score determined so that you know where to start. If you don’t know your score, you can find out here or here. Also, lenders today tend to focus on your FICO (Fair Issac Corporation) score too. So, it would help you to get your FICO score checked and ready. Once, you’ve determined your credit score, proceed with the following steps:

  • Identify multiple lenders – The first step is to identify a few lenders who are willing to provide you a loan, given your credit history. Identifying multiple lenders will allow you to have options available. If your credit is so low that no lender is willing, you can take a few measures to improve your score. We’ve explained these measures below.
  • Split more significant sums into different lenders – If you’re trying to secure a loan that’s $20,000 or above, you may find it hard to find lenders. In this situation, try to distribute the sum of your loan across multiple lenders. This may prove to be an economical solution when no single lender agrees to that amount.
  • The right repayment period – When you opt for more extended repayment periods, you end up paying much more just for taking a loan. The drawback to shorter repayment periods is that your monthly payments are higher than average. The trick here is to strike a balance between the two extremes. Find a repayment period (and amount) that can be accommodated in your budget and financial future.
  • Browse on soft credit – Lenders do not frequently test your hard-credit (the type that affects your credit score). Initially, they will only check your soft-credit, which does not immediately reflect on your credit score. You can use this wiggle-room to look for appropriate lenders even if you’re low on credit score.

Requirements for a debt consolidation loan

Like any other loan, debt consolidation loans also have specific requirements that lenders will specify. For the most part, it’s your credit history and credit score that will determine the kind of documents your lender will request. Understandably, people generally want personal loans with no credit check by lenders. But even the best personal loans online or in-person will require some basic credit-worthiness from the applicant.

Other than this, the other essential criteria when applying for a loan are:

  • The advisable age for seeking a loan is at least 21 or above. Although, you can start applying once you’re 18 years of age.
  • The recommended monthly earning for a person applying for a loan is around $2000 (Before tax). Strictly speaking, you can still try for a loan if your monthly income is over $800. But you have better prospects if you’re higher up the income spectrum. Lenders are also concerned about the monthly payment you’ll make for the loan.
  • An active bank account. Ideally, you should have regular transactions being made in your account, which reflects well in your credit history.
  • A document of identification.
  • Proof of income; it’s usually a pay stub that breaks down the amounts that go to your insurance expenses, taxes, etc. in addition to your paycheck.

Most people begin by trying to find the interest rates for a debt consolidation loan. But it’s usually your credit report that will determine these elements.

Benefits with Debt Consolidation Loans

With all the questionable information that surrounds debt consolidation, people tend to wonder, ‘Is debt consolidation a good idea?’ To find out whether it’s the right move for you, take a look at the advantages it offers.

  • A single monthly payment will replace multiple smaller amounts to different sources.
  • If you choose carefully, debt consolidation loans with low-interest rates can be arranged.
  • You can also work your way towards a debt-free life. This, of course, assumes you don’t take out any additional mortgage, online loans, installment loans, etc.
  • As long as your new loan is up-to-date, you’ll also face less disturbance and pestering form agencies and loan collectors.
  • If your current loan is managed well, your credit note will also improve. This means you won’t have to run from pillar to post, trying to make your credit score better. It also enhances your prospects of getting good loans online or from physical lenders.

Risks with Debt Consolidation loans

Although there are tons of benefits with debt consolidation loans, there are certain loan-risks that come along with it.

  • If your low monthly payment requires you to pay for a more extended period, you should track the total sum you’ll end up paying. Longer payment periods usually mean more payment amount.
  • While proper payment schedules can improve your credit report, there is also the risk of bringing down your credit-worthiness too. For instance, when you combine multiple existing debts to a single, bigger loan, it may bring down your payment capabilities. It may also harm your credit utilization ratio, which credit reporting agencies look at closely.
  • You also run the risk of getting special interest rate discounts that may have, otherwise, been available to you.
  • Debt consolidation services and agencies may try to impose bigger interest rates and payments. This may end up being more expensive than if you continued paying normally.

Can Debt Consolidation Loans Lower My Interest Rate?

The answer to this question depends on a number of things, most importantly, your credit score. A good credit score will definitely get you a debt consolidation loan with a low-interest rate. But the interest rates for your loan will increase if your credit report is also low.

For example, if your credit card company requires you to pay a decent monthly amount for a long duration, getting a debt consolidation loan with a shorter duration can balance out in your favor. In this case, you benefit from the low-interest rate in debt consolidation loans.

The average interest rate for personal loans was 10.21 % for 24 months, until recently (end of 2019). If your credit report is above 680 or so, your interest rates would be lower than this. Remember that approaching multiple lending sources may be beneficial. You will get to hear different offers and weigh in on which arrangement suits you best.

Debt Consolidation Loan for Bad Credit – Direct Lender VS Connector

To get the best debt consolidation loan with bad credit, you need to close in on lenders who are willing to finance you. With a bad credit report, this can be a difficult task, often unsuccessful.

With a direct lender, you can interact straight with the lender. But this means you may also experience a lot of time and energy wasted on unsupportive lenders. On the other hand, a connector will get your case matched with a lender with more efficiency and coordinated efforts. This means you may find a lender who may approve your loan without going through the other hundreds of lenders who will reject your lousy credit scenario.

Do guaranteed/No Credit Check Debt Consolidation Loans for Bad Credit Exist?

Today, most loan-seekers would love to get guaranteed debt consolidation loans even with bad credit. This implies that debt consolidation loans without credit checks are possible. However, no credit check debt consolidation loans are far from the truth of things.

When you apply for a loan, the lender will sooner or later check your credit-worthiness. Your credit report is like your borrower’s power report. It inevitably influences the nature of loans you get and the interest rates you have to pay. So, no lender will offer you guaranteed debt consolidation with bad credit. They refuse to provide a no credit check debt consolidation loan when they suspect you to have a bad credit score.

Improve Your Credit Score To Get Better Offers Overtime

Is your bad credit preventing debt consolidation loans? As much as it may feel like rock-bottom, bad credit is not the end of the line. The solution will, however, involve some discipline and thriftiness on your part. Here are some sure-fire ways of how to improve your credit score over time:

  • Substantial Credit Card Payments – Credit card companies typically assess the credit balance you have and measure it against the debt you’ve incurred. Keeping your debt percentage at 30% or below can do wonders for your credit-worthiness. For example, if you owe your credit card carries a sum of $15,000, your debt should ideally be less than $4,500. Anything above this should have you scraping the barrel to pay off the excess debt.
  • Consolidate the balances you have – To bring down the overall amount of debt, focus on paying off all the small debts you owe. Credit companies are in the habit of monitoring your credit cards that carry any balance. And consolidating them should reflect well in your overall credit score. Remember the 30 % ceiling when you mobilize your debts into a single card since it will also come with substantial interest rates.
  • Branch out your credit cards – If your debt is incurred on a single card, you can consider getting a couple of additional accounts to increase your credit limit available. It will automatically lower your credit utilization in relation to the higher credit limits.However, if your current account hasn’t been around for long, do not indulge in too many additional accounts. Continuous account-creation is risky behavior when your credit is new, and you want a good report.
  • Clear balances in advance – Don’t stick around waiting for the due date to clear your dues. Find out the schedule of your card company regarding their reports to the Bureau. Once you’ve learned this schedule, clear your dues before these dates.
  • Use a Secure Credit Card – Secure credit accounts require you to hand over a cash deposit while initializing your account. This deposit usually becomes your credit limit. This element of security incurs fewer risks for the company and simultaneously lays the groundwork for much better credit for you in the future.

Summary

When all is said and done, remember that your credit score is ultimately in your hands. Even if guaranteed debt consolidation loans were available, it wouldn’t help creditors who don’t manage their finances well.

So how do I improve my credit score, you ask? Simple. Make lifestyle choices that make good fiscal sense. Plan your finances down to the last detail. They say, ‘Failure to plan is planning to fail!’ With your credit and finances, this cliché rings true even today!

Focus on your behavior and economic choices you make. It won’t be easy, and it won’t be quick. But it will, without a doubt, lead you to a life where you have better control of not just your finances, but every other aspect of your life too.

Quick Stats

Highest AmountLifeLoans - $40,000

Loan Terms up toQuickLoanLink - 7 years

Recommended income$2,000+ per month

Grace Chen
Article written by

Grace Chen

Grace Chen has 10 years of experience in the financial field and have been delivering excellent business content through her articles.

Grace graduated from the Haas School of Business, University of California and is currently the chief editor of Communicate Better where she has written and edited thousands of articles published in various media.