You have a lot of debts and you don’t know how to pay them off. You’ve considered taking out a personal loan to consolidate debt, but it’s hard to find debt consolidation loans for bad credit.
And if you’ve had trouble paying off your debts, you may have damaged your credit score – so the very reason you need a consolidation loan could also be the reason you can’t. obtain a. Here is an overview of resources that can help you if you need a debt consolidation loan for bad credit.
Debt consolidation loans and credit scores
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 in the mid-600s or higher – for easy approval and low rates.
With a credit score lower than this, it will take some work to find loans you qualify for. Expect to accept some trade-offs, such as limited lender and loan type options, and higher interest rates or loan fees.
7 Ways to Qualify for Bad Credit Debt Consolidation Loans
A bad credit rating will make it harder to get a loan, but it’s 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 lenders with a low minimum credit score
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 are historically difficult to discharge in the event of 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, have no minimum credit requirement 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.
Refinancing student loans with bad credit is possible, but if you’re struggling with student loan debt, you’ll want to consider other options as well. Federal loan consolidation could help, as well as income-oriented repayment plans.
2. Try lenders with a low minimum credit score
If you have a low credit score, don’t automatically assume 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 debt consolidation loan for bad credit.
3. Consider a debt consolidation loan with a co-signer
Many lenders do not offer debt consolidation loans to people with bad credit, but they may 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 allows co-applicants. Some, but not all, lenders allow co-signers for their personal loans.
See if a partner or family member with good credit is willing to co-sign the loan, and you’ll have a better chance of getting approved for bad credit debt consolidation loans.
4. Check with a credit union
Credit unions are nonprofit 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 some of the lowest rates when they borrow from a credit union.
Check with local or national credit unions to see what options they offer for your credit score. Some credit unions offering personal loans may design their product specifically for borrowers with poor credit.
Loan officers at a credit union also often have more say in the underwriting process, so you can present your case to 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 non-profit debt counseling agencies often offer free credit counseling and debt help.
Find a nonprofit debt counseling organization in your community or one that offers services nationwide. You need to verify its 501(c)(3) non-profit status.
Once you are connected to these services, many 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 in-house debt consolidation through a debt management program. The nonprofit can even negotiate with lenders on your behalf to lower rates or write off some of your balances. However, you’ll likely have to pay additional service fees to set it up, as well as ongoing maintenance fees.
6. Secured loan
If you have assets, you might consider borrowing against them with a secured loan to consolidate your debts. With a secured loan, your assets – like a car or the equity in your home – are collateral that the lender uses to secure the loan.
A secured loan has the obvious disadvantage of putting your property at risk. If you default, your lender can seize your property to settle the debt. But it also reduces the lender’s risk, so it’s much easier to get approved for a debt consolidation loan with bad credit.
It’s worth considering other options first: for example, you could sell your car and use the 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 keeping 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
Last but not least, you can still spend time repair your credit and try again in a few months. If you can raise your credit score by even 30 or 50 points, you could improve your chances of being approved for a debt consolidation loan.
If your credit score is just on the edge of average (600 to 650), it might be worth focusing on rebuilding credit.
Andre Pentis contributed to this report.
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