High-interest debt can be hard to pay off, especially if that interest compounds and increases your principal balance. When you have multiple sources of debt, consolidating them into one loan can help you simplify the repayment process. That leaves you with just one monthly payment and one interest rate to deal with.
Consolidating debt can also potentially lead to a lower interest rate, which can make it easier to pay off debt faster. However, the interest rate you’ll be offered depends on your credit score. If your credit’s on the lower end, you may find it hard to qualify for a loan with a good interest rate.
Read on to learn about how debt consolidation loans for bad credit work.
Not sure where you lie on the credit score spectrum? FICO credit scores are ranked on a scale of 300 to 850, and anything under 670 is considered bad.
The FICO credit-scoring model is one of the most popular models used by lenders, so comparing your credit score to it can give you a pretty good idea of where you stand.
If you have multiple sources of debt, you may feel overwhelmed trying to balance different payment amounts and due dates. A debt consolidation loan can really help simplify the repayment process.
If your credit score is considered bad, you may not have as many options and may need to settle for higher interest rates, but it is usually still possible to get a debt consolidation loan. It will be up to you to crunch the numbers to see if consolidating makes sense. One of the main perks of debt consolidation is being able to access a lower interest rate.
Related: Learn more about getting a personal loan
Qualifying for a debt consolidation loan is possible even with bad credit. These are some of the requirements lenders will take into consideration.
If you have bad credit, debt consolidation could actually help you reach your financial goals. Some of the benefits of combining debts when you have bad credit include:
It pays to also be aware of the drawbacks associated with debt consolidation loans for bad credit.
Related: Learn more about getting a personal loan
The following answers to some common questions about debt consolidation loans can help you determine if this move is right for you.
The size of the loan depends on each lender you apply with, as well as other factors, such as your income and additional debt obligations. Determine how much debt you want to consolidate and then apply with a variety of lenders to see if they can offer you the full amount you need to borrow.
You can usually apply for debt consolidation loans at banks or credit unions. Some online lenders also offer debt consolidation loans and tend to offer lower interest rates. However, it’s crucial to only deal with reputable lenders to avoid scams as there are many predatory lenders out there that try to take advantage of those with bad credit.
If you decide a debt consolidation loan is not the right fit for you, perhaps a debt management plan could help you get on track toward paying off your debt. You can work with a credit counselor to come up with a reasonable debt management plan and can even try to negotiate a lower interest rate with your lender.
You can also turn to debt repayment methods such as the debt avalanche method or debt snowball method to help you make progress in paying down debt and improving your credit score.