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Does It Make Sense To Get Debt Consolidation Loans With Bad Credit?

If you’re struggling with debt – like the other 80% of Americans1 – you may be looking for a way to pay off your bills and get back on track financially. Debt consolidation loans for bad credit profiles are one way to get out of debt, but you may be wondering where to look if you’ve been turned down by your bank or credit union. Before you go down the wrong road, take some time to realize there are choices for you, regardless of your credit history and financial situation. In addition, the more you understand about the differences between the many debt relief options, the more likely you are to make a smart decision and get on the road to financial freedom.

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Where to Get The Best Debt Consolidation Loans with Bad Credit

While you should always be working to improve your credit, sometimes you just don’t have time. The good news is, even those with poor credit have options when it comes to finding a debt consolidation loan. With bad credit, however, could come higher interest rates that could push you deeper into debt. Before jumping into the first option you find, read below to found out who offeres the best debt consolidation loans for bad credit.

Do Banks and Credit Unions Provide Bad Credit Debt Consolidation Loans?

Many people looking for debt consolidation loans with bad credit profiles contact their bank or credit union first. And while it makes sense to do business with an institution that you already know and trust, you may be disappointed if you get turned down for a loan. Banks and credit unions offer a variety of traditional loans and other products, but they typically don’t offer debt consolidation loans for people with bad credit.

Banks and credit unions often use a risk-based pricing model, meaning the bigger the risk they think you are in terms of repaying the loan, the higher the interest rate they’ll charge you. So even if you get approved for a loan, you could end up paying more in interest and fees than someone with better credit.

So whether you are approved for a loan at a high interest rate, or you get turned down because of your credit, remember there are plenty of other options for debt consolidation loans for bad credit. Just keep doing your research and contact other lenders and debt relief companies before signing any paperwork.

Can “Payday” Lenders Give Me A Debt Consolidation Loan With Bad Credit?

It may sound tempting – get a cash advance on your paycheck, and pay back the money in a week or two. But read the fine print, and you’ll find that payday lenders prey on those who are looking for debt consolidation loans for people with bad credit who need cash right away. You may be surprised to learn that 80% of payday loans are followed by another loan just 14 days later2. Often these consumers feel they have no other option, as either they’ve been turned down by their bank or credit union, or they don’t have time to wait days for an approval. Consumers who opt for payday loans are seduced by the ads promising quick cash with no credit checks.

So what exactly is a payday loan? It’s typically a short-term loan or cash advance intended to tide you over until your next paycheck. And what isn’t it? It’s not a way to get out of debt, stay debt-free, or develop strong money management skills to last a lifetime. In fact, monthly borrowers are disproportionately likely to stay in debt for 11 months or longer2. Opting for payday loans often leave consumers deeper in debt and somewhat “addicted” to the cycle of getting fast cash whenever they need it. If you’re looking for debt consolidation loans for people with bad credit, you’d be smart to look elsewhere.

Do Debt Consolidation Lenders Offer Bad Credit Consolidation Loans?

Lenders operate differently from banks and credit unions; they focus on offering debt consolidation loans for people with bad credit, as well as those with average or better credit profiles. When you opt for a debt consolidation loan from this type of lender, you’re entering into an agreement for the lender to pay off your existing debts now. You’ll then have one loan – meaning just one monthly payment – due to the lender, which you’ll pay back over a period of time. Debt consolidation loans typically use a risk-based pricing model similar to banks and credit unions, so the interest rate you pay is based on your credit and ability to pay back the loan.

A reputable lender will offer several different debt consolidation loans for bad credit profiles. They understand a one-size-fits-all approach doesn’t take into account your unique financial situation. If you decide to work with a debt consolidation lender, make sure they show you multiple options, and that you understand how each works, how much you’ll pay every month, your interest rate and any fees, and how quickly you can pay off the loan.

Alternatives to Debt Consolidation Loans for Bad Credit

Although debt consolidation loans are an option when you have bad credit, they might not be the best option. There are a few viable alternatives to debt consolidation loans for bad credit you should be aware of that may be a better fit, and could help you get out of debt faster.

Consumer Counseling Agencies

Nonprofit consumer credit counseling agencies offer alternatives to debt consolidation loans for people with bad credit. They may help you negotiate better interest rates with your existing creditors or find another way to pay down your debts. And they may sound like the best option available – work with a nonprofit agency that’s looking out for your best interests, right?

Many people assume a consumer counseling agency is the best choice, simply because the words “not-for-profit” imply an agency is helping consumers out of the goodness of its heart. But the only difference between a non-profit and a for-profit debt relief company is that the non-profit doesn’t pay taxes on the money they make. That means they may still charge fees for their services. It’s up to you to do your research to find a company that has a strong record of success getting people out of debt the right way.

When doing your homework, don’t let the non-profit status of a consumer credit counseling agency fool you into thinking it’s the only or best option for getting out of debt. Between debt consolidation loans for bad credit profiles and the alternatives to traditional loans, you have a lot of choices to improve your financial situation.

Debt Relief Companies

Debt relief companies, such as the providers of CareOne Debt Relief Services, are another option for people with bad credit. While ultimately the choice is up to you, a debt relief company like CareOne takes into account your specific needs and individual financial situation. This solution may offer everything you need to pay off existing debts and get on the road to financial freedom.

Depending on the debt relief company, they may offer several options for getting out of debt. For example, CareOne provides two plans for consumers; while they do not provide debt consolidation loans for people with bad credit, they work in similar ways and can help you get out of debt and stay debt-free for the long-term.

  • Debt Management Plans– A Debt Management Plan (DMP), such as that offered by the providers of CareOne Debt Relief Services, is a debt consolidation plan that may help you pay down all of your debt within five years. You may enjoy a lower interest rate than you’re currently paying to your existing creditors, meaning you could save money every month.
  • Debt Settlement– With debt settlement, you make monthly payments that you can afford to your debt settlement provider for deposit into an escrow account. Meanwhile, the provider negotiates with creditors for a lower settlement on the outstanding sums you owe. Once an agreement is reached, the deposited funds are used to pay the negotiated amount to the creditors.  This option is best for people with bad credit who can’t afford their current monthly payments, and are looking to avoid bankruptcy.

In addition to these debt relief plans, CareOne provides financial education and support, so that you can stay on track and get out of debt the right way.

Whichever type of lender or debt relief company you decide to partner with, it’s a good idea to review the companies you’re considering, the plans they offer, and their records of success before signing an agreement to do business with them. You can learn more about debt consolidation loans for people with bad credit, as well as loan alternatives, by visiting CareOne’s extensive article library. It’s a great resource to help you make smart financial decisions now and in the future.  

1 - The Motley Fool - Most Americans are Currently in Debt
2 - Consumer Financial Protection Bureau - Payday Lending Data Points

A. Landow - Author Bio

A. Landow has been in the financial industry for over 20 years and has helped CareOne to become a treasure trove of information for people struggling with debt. She enjoys helping Care One’s readers educate themselves about personal finance and debt consolidation options that can help them take control of their finances.

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