Credit card debt consolidation loan bad credit

What is a debt consolidation loan?

A debt consolidation loan combines multiple unsecured debts — such as credit cards, medical bills and payday loans — into one fixed monthly payment.

A debt consolidation loan is usually a good idea if the interest rate on the loan is lower than the combined rates on your existing debts. With this lower rate, you’ll save money on interest and potentially pay off your debt faster.

You can use a debt consolidation calculator to estimate your interest savings and new monthly payment, and to compare various loan options.

How to choose the best debt consolidation loan

When deciding between debt consolidation loans, compare these factors.

Annual percentage rates: The loan's APR represents its true annual cost, as it includes all fees and interest charges. Rates vary based on your credit score, income and debt-to-income ratio. Use APRs to compare multiple loans. Choose a low rate with monthly payments that fit your budget.

Origination fees: Some lenders charge origination fees to cover the cost of processing your loan. This one-time fee typically ranges from 1% to 10% of the loan amount and is either deducted from your loan proceeds or added to the loan balance. If the fee is deducted from your loan proceeds, you’ll need to request more than the sum of your debts in order to cover the fee and still have enough to pay your creditors.

Lender features: Some lenders offer consumer-friendly features like direct payment to creditors, which means the lender pays off your old debts once your loan closes, saving you that task.

Other features to shop for include free credit score monitoring and hardship programs that temporarily reduce or suspend monthly payments if you face a financial setback, such as a job loss.

How to qualify for a debt consolidation loan

Build your credit: Loan approval is based mainly on your credit score and ability to repay. It may be possible to get a debt consolidation loan with bad credit, but borrowers with excellent credit (720 to 850 credit score) have more loan options and may qualify for lower rates. If you have fair or bad credit (below 690 credit score), it can pay to build your credit before seeking a consolidation loan.

Add a co-signer: Adding a co-signer can help you qualify for a debt consolidation loan that you wouldn’t be able to on your own due to poor credit or low income. There are risks to your co-signer, though, so that person will need to weigh their decision carefully.

Shop around: Compare rates and terms at multiple lenders before applying for a debt consolidation loan. Most online lenders let you pre-qualify with a soft credit inquiry, which has no impact on your credit scores.

Preparing for a debt consolidation loan

Plan ahead: Before your loan is funded, create a budget that allocates a percentage of your income toward debt repayment.

Curb spending: Avoid big expenditures on your credit cards as you pay off debt, but don’t close any of the cards. Canceling credit accounts can hurt your credit score.

Commit to the long-haul: Consolidating debt is a smart choice for many, but it’s important to remember the debt doesn’t disappear — it goes somewhere else. Most debt consolidation loans offer terms of two to seven years, so be prepared to stick to your monthly payments over that time period.

Will debt consolidation hurt my credit score?

Consolidating your debt with a personal loan can help — and hurt — your credit score. When you use the loan to pay off your credit cards, you lower your credit utilization, which measures how much of your credit limit is tied up. Lowering your credit utilization can help your credit.

On the other hand, applying for a loan requires a hard credit check, which can temporarily ding your credit score. And if you turn around and rack up new credit card debt, your credit score will suffer.

Making late payments on your new loan can also hurt your credit score, while on-time payments can help.

How to pre-qualify for a debt consolidation loan

Pre-qualifying for an online loan can get you access to potential loan terms, including the loan’s interest rate. You can pre-qualify with multiple lenders on NerdWallet to compare offers and find the lowest rate.

Other ways to tackle debt

A debt consolidation loan isn’t your only option for getting debt under control.

0% balance transfer credit card: For borrowers with good to excellent credit (690 credit score or higher), transferring debts to a 0% balance transfer card may be a good option, as long as you can pay it off during the introductory period.

Credit counseling: Nonprofit organizations offer credit counseling, which includes helping you create a debt management plan. Similar to other consolidation products, these plans roll your debts into one manageable payment at a reduced interest rate.

Debt payoff strategies: If you’re not sure how to tackle debt, you may not need to consolidate. The debt snowball and debt avalanche methods are two common strategies for paying off debt. The snowball method focuses on paying off your smallest debt first, building momentum as you go. The avalanche focuses on paying off the debt with the highest interest rate first, then applying the savings elsewhere. Both can boost your payoff speed.

Is it possible to consolidate debt with bad credit?

What credit score do you need to consolidate debt?

How can I pay off my credit card with bad credit?

Can you get a consolidation loan if you are blacklisted?