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How To Get Debt Consolidation Loans with Bad Credit

Those with many different types of debt, from credit cards to medical debt, could benefit from a debt consolidation loan. However, getting a personal loan to cover debt can be tricky if your credit score is below 650. 

People with bad credit can get a debt consolidation loan, but you must look at the loan product to ensure it serves your financial goals. A consolidation loan can be beneficial in making payments more convenient, saving money, and eliminating all those collection calls. It can also improve your credit score. 

Preparing to Get a Consolidation Loan

It takes a little preparation to make sure getting a consolidation loan is a viable alternative. That means understanding exactly what you owe, how much you're paying in interest, and what the payoffs would be. 

Look at your debt-to-income (DTI) ratio. It shouldn't be more than 30 percent to hope to get any type of personal loan, for debt consolidation or otherwise. Even though some companies may work with you if it's over that, you need to understand where you stand in debt before inquiring.

Negotiate Debt Payments Yourself

You may want to do this regardless of whether you get a loan. Getting settlements on your debt can save you up to half. Some debt consolidation companies will offer to do this, but they will charge you. 

Call your collectors and ask how much they can discount you if you pay off the debt. Then, take that number to those you are considering as lenders. That's less money you need to borrow, increasing your chances of getting a loan.

person sitting on the couch using a phone to research online loans

You should also ask what type of discount can be offered if you make several payments. For example, some are so anxious to resolve the debt that they will give you a discount if you break it out into two or three payments. 

Don't agree to anything yet but write down all the numbers. You can consider those options once you know if you can get a loan or need to pay it off yourself. Math calculations would also be needed because you will need to compare the interest on the loan with the interest you are already paying on all your debt to see if you will be saving money.

Whatever you do, make sure your collectors inform the credit bureau that you've paid off your debt. You may also want to send a notice of proof of final payment to all three credit bureaus.

Be aware that it will take time to rebuild your credit, even if you get a debt consolidation loan. Credit is built with on-time payments; getting all your payments listed can take three to four months. 

Options for Debt Consolidation

Those with bad credit have some options to clear up their credit and get a debt consolidation loan, although it may not be quick or easy.  In addition, it may take a little work to meet your monetary goals. 

Credit Unions and Banks

Your bank or credit union is the first place to check to see if you can consolidate debt. Some who have been with a bank for a while may gain some consideration, especially if you've kept your checking account in good standing and have had a job for a few years. However, banks are becoming stricter about personal loans. 

Credit unions tend to be more lenient regarding personal loans for debt consolidation. They will look at your debt and tell you what they can offer. They occasionally double-check to ensure the money is used to pay off the debt.

couple having a meeting at a traditional bank to see if they can consolidate their debt

One credit union option for those who have savings is to borrow against their savings to pay off their debt. Your savings remain intact while you pay the credit union loan off. This is a good option for those with no credit as well. 

Get a Secured Loan

Some people with bad credit can opt for a secured loan to consolidate debt. This may be an option for those who have a property and are in debt because of an adverse event rather than bad spending habits. 

Those who have outstanding medical bills due to an illness or extensive home repair costs due to a storm that insurance didn't cover are two that may want to consider this option. 

The obvious way to get a secured loan is through a home equity line of credit (HELOC), a home equity loan, a second mortgage, or refinancing. This could not only pay off your debt but also result in a tax break because those are deductible.

You must be careful because failing to pay a home equity line of credit, a second mortgage, or an increased mortgage payment could land you in foreclosure.

Borrow From Your 401K

Those younger than 59 can borrow against their retirement plans to pay off debt. That could put you in a better financial situation and improve your credit score 

However, you must pay your 401K back within 60 days or face severe tax penalties. That means you need to look at whether you can repay it. 

person using a laptop to borrow from their 401k savings

Those who are expecting things like a large commission check, a tax return, proceeds from a home sale, or an estate settlement may find this option doable. 

Anyone who finds it challenging to find and keep money now may put themselves in a worse situation by taking this option.

Debt Consolidation Company

Companies exist that negotiate your debt down to a lower level, negotiate interest, and come up with a monthly amount for you to pay. You pay the debt consolidation company, and they pay your lenders. 

The advantage of this option is you will improve your credit score rather quickly. The disadvantage is that these companies charge you a fee for doing this and will end the contract if you don't pay on time. Then, you're back to square one. 

You may find that you can negotiate down your debt or propose a settlement to any of these companies. 

Online Debt Consolidation Lenders

Many online debt consolidation lenders are out there, and they do accept those with bad credit. They offer personal loans for debt consolidation. This offers the quickest way to eliminate bad debt and build a positive debt history.

SimpleFastLoans offers three types of loans, including installment loans, personal loans, and lines of credit. Installment or personal loans are the ones to consider when looking at debt consolidation. 

An installment loan offers flexible repayments from $200 to $3,000. The amount will be the same each month so that you can budget it.  The total you can borrow depends on your income and repayment ability. Maximum amounts also vary by state. 

Your credit will be checked when you apply for an installment loan with SimpleFastLoans. However, they do accept some with less-than-perfect credit. SimpleFastLoans has several credit options they can discuss even if other lenders have turned you down. 

One advantage of an installment loan is you don't need collateral.

The application process is easy because you can apply online and get an instant decision. However, you will need valid government-issued photo identification like a driver's license, an active checking account in your name, a valid telephone number, and a valid Social Security number, and you must be at least 18 years old. 

The one restriction is that applicants can't be a reserve, regular, active-duty military member or dependent on someone on active duty. 

SimpleFastLoans also offers personal loans that range from $200 to $3000 with no collateral. The amount you can borrow is determined by your circumstances and the restrictions imposed by the state in which you live.

This loan is also paid in set installments over time. The differences between personal loans and installment loans are small and primarily relate to their uses. For example, a personal loan can also be used for debt consolidation. 

A personal loan with SimpleFastLoans is a fixed amount with set repayment terms, so there are no surprises and no hidden costs. Like installment loans, the application process is simple and is done online. 

You will be required to have the same documents as an installment loan and proof of income, such as copies of your last few pay stubs or tax forms. 

Benefits of Getting a Debt Consolidation Loan

SimpleFastLoans has an advantage over others for those with bad credit who are looking for a way out. It's easy to apply, and an answer comes within a minute or two. You don't have to put up your home or car as collateral. It sets up installments so you can budget and plan. 

The best part is that you will no longer receive annoying phone calls and can see your credit score rise after you pay off your debt. 

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