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The best way to eliminate debt is to avoid and get rid of debt by budgeting and saving - check out the seven baby steps for more…

But you’re here because you’re curious about debt consolidation. If you have bad credit, finding a lender willing to offer you loans isn’t as easy as it is for those with a pristine credit history. 

This can make it difficult to fund projects or purchase certain assets. However, there are ways that you can work with a lender to get your hands on cash even if your credit score isn’t the best.

Debt Consolidation

This article will give you the rundown on how to consolidate debt with bad credit.

Table of Contents:

What is Debt Consolidation?

What is Debt Consolidation

Consolidation is when you take out one loan and combine it with another. Why would you do this? It’s often done by people with bad credit. It theoretically helps fix your debt by combining two or more debts into one, which lowers your overall payment and makes it easier to get approved for loans. 

You can often lower the amount of interest you’re paying on your debt. With the lower interest, you could save thousands of dollars over the life of the loan, depending on how long you have the loan for. There are many different types of consolidation, including debt reduction and debt settlement. 

Debt reduction involves taking out one loan and using the money from the other to reduce the amount owed on the other loans. Debt settlement works a little differently; it involves negotiating with your lender to lower the amount owed to a lower amount.

How to Consolidate Debt with Bad Credit:

  • The first thing you need to do is make sure you’re eligible for consolidation when you apply. 
  • Remember, your credit score matters and it will be a big factor in whether or not the lender will approve your application. 
  • If you’re already paying on a loan or credit card, but your credit is less than perfect, then you may be able to consolidate if you are willing to pay more interest than what you are currently paying. 
  • You can also take out a new loan and combine it with another debt. Keep in mind that lenders don’t like this because it can lower the amount of money they’re going to get from the debtors. 

How Much Can You Save? 

There are many different ways of calculating how much money you can save by consolidating your debts. The most common way is simply using an online calculator that subtracts one loan from another and gives an estimate of how much less interest will be paid over time. 

You can also use a more complex approach that takes into account how long the loans are going to be outstanding, how much they cost each month and other factors such as whether or not there is any kind of grace period on the loans and how much interest they would have been accruing had they been paid off each month.

This calculation would typically be done using an online calculator.

Which Is Better - To Consolidate Debt or Pay Off Debt?

Have a read of the snowball approach to budgeting in order to eradicate debt. 

When it comes time to choose which debt repayment option is better for your finances, there are two main options. 

Paying off debt is almost always the better path than consolidating it. Taking this approach is harder at first glance. But ultimately, it’s the better path that rewards the most. 

In fact, by paying off debt this means you have managed to do many things:

7 Baby Steps
  • ⛄ You have learned to use common sense with your finances, which is a very important life skill. 
  • ⛄ You have learned to be self-reliant. 
  • ⛄ You are on the path to being able to offer others credit, rather than being indebted (you are on the other side of the fence). 
  • ⛄ You can begin saving, which you can use to invest in opportunities when they crop up. 
  • ⛄ You are free from having to work overtime in order to make up the debt - your time is open to pursue hobbies and more. 
  • ⛄ No mental health issues associated from being indebted to someone else.

How to Consolidate Debt with Bad Credit

Finding a lender willing to work with you if you have bad credit can be challenging. That’s why it’s so important to know what to do. There are a few key steps to take. 

Picking a lender is the most important step. Because it’s the one that determines your outcome, you should make sure that you pick a lender that works with people with bad credit.

How to Consolidate Debt

Once you pick a lender, you’ll need to apply. It’s important that you keep all of your loan applications with you at all times so that you can quickly apply to any lenders that contact you.

With all your applications in one place, you can resume or start to pay off the existing loans. The benefits of taking out a consolidation loan usually include: 

  • Lower interest rates on the new debt compared with the old ones. This can help make it easier for you to pay off the new loan faster and save more money overall over time compared with what would have been spent had all your debts been paid off with one payment. 
  • The ability to consolidate debt with other types of loans and credit cards. This can help you get a lower interest rate on the new loan, as well as on other loans and credit cards that you may want to use in the future. 
  • Larger amounts of debt consolidation loans are available than for fixed payment plans. This means that you could pay off more debts at once, which can make it easier for you to pay everything off faster and save more money overall over time compared with what would have been spent had all your debts been paid off with one payment.
  • Lower monthly payments. Instead of paying a set amount on all your debts every month, you will only have one payment that goes toward all your debts (or at least your new loan). This means that there will be less money going out each month, which some think makes it easier for you to get back on track with your budgeting and saving habits if desired. 

Drawbacks usually include: 

  • You will still have some debt. A negative balance that remains after the consolidation loan is paid off, which could lead to additional financial difficulties in the future (such as paying back high-interest credit card balances or paying down high-interest debt). 
  • You may be tempted to use the new debt for something else. As in, other than what was intended when taking out a consolidation loan (such as using it for an emergency fund). When you do the opposite of saving, you build the habit of consuming without earning it.
  • You will have less control over how much you spend each month. This is especially true if there is no set amount. If you don’t pay attention to your budget or are not careful about how much money is going out each month, you may end up spending more than usual when compared with what would have been spent had all your debts been paid off with one payment.

Figure Out Your Lenders’ Lending Criteria

Once you pick a lender, you’ll want to ask them which lenders they work with and what type of credit score they’ll accept. 

It’ll be important to know this ahead of time so that you can pick a lender that will be open to working with you. 

It’s also a good idea to narrow down your options before you ask the lenders their requirements.

Lending Criteria

This will allow you to quickly eliminate any lenders that are automatically going to reject you. When asking lenders for their credit requirements, you should try to stay away from words like “bad” or “Dunning.”

Remember that lenders aren’t psychic, but they can often tell that you have bad credit. To gauge how bad your credit score is, you can use a credit report tool like Credit Score Radar. Credit report tools often have better credit scores than lenders, so you can use these to gauge whether or not a lender will work with you.

Discover which lenders will accept you with a credit score:

  • ☑️ There are a few ways that you can find out what your lenders’ lending criteria are. One way is to ask your lenders or to speak with the bank representative that manages your accounts. 
  • ☑️ Another way is to read through each lender’s website and look at their requirements. You can often find information on these websites or, if you call the lender, ask the representative what they need.

Once you know what your lenders’ requirements are, you’ll want to decide who you’ll be working with. You might have a few options, like dealing with each of your loans individually or doing a debt consolidation. 

You’ll also have to decide who will be receiving the loan. It might be easier to split it up between family members, who may be more likely to help out, or an organisation, like a charity. And if you decide that you want to do a debt consolidation, you’ll have to decide which of your loans to keep or which to include in the consolidation.

Types of Debt Consolidation

There are many different types of consolidation debt. The most common type of consolidation involves taking out a loan against your existing debts. 

This can be done with a bank loan or a credit card. You’ll continue to make the same payments, but now they go toward the new loan.

Another common type of consolidation is debt reduction. In this instance, you take out one loan and use the money from another to reduce the amount owed on the other loan.


Debt settlement also exists, and it involves negotiating with your lender to lower the amount owed to a lower amount.

Other types of debt can be consolidated, such as student loans or for struggling post-COVID businesses. Indeed, a popular type of consolidation is a mortgage or home equity loan. This involves taking out a new loan against your home in order to pay off an existing one.

Bank / Personal Loan

A bank loan is typically for a small amount of money that’s for a specific purpose, like purchasing a vehicle. 

The loan is from a financial institution like a bank that you trust. If you’re looking for a small amount of cash for a project, this is a great option. 

Another advantage of this loan is that you can often get a better interest rate. When searching for a bank loan, make sure that you’re only looking at lenders that work with people with less-than-perfect credit. These will be willing to give you a lower interest rate and may even be willing to offer you a deferred payment plan.

What you need to know when you want to take out a personal loan - it’s important to consider your situation: How big of a loan do you need? What are your monthly debts? How much of a down payment do you have? Do you have any other debts?

Credit Card Consolidation

A credit card is like a debit card that lets you spend money on goods and services without having to pay the entire amount at once. The nice thing about a credit card is that you don’t have to pay it back until you use it. 

You might only use a small amount on your card each month, but the amount that you’re charged can quickly add up. However, there are often limitations on how much you can spend on your card before it’s paid off. 

If you’re looking to consolidate your credit card debt, a credit card consolidation loan is a great option. This allows you to use only one card for all your purchases and pay only the amount that you can afford.

The term 'credit card consolidation' can mean different things to different people. To some, it can be a simple process of taking out a new credit card, transferring balances from existing cards to the new one, and paying off the old debts. 

Credit Card Consolidation and Personal Loans: What Are the Differences?

If you are considering either of these options, it’s important that you understand the difference between them. Here is what each of these options mean: 

💳 Credit card consolidation means transferring balances from several credit cards into one or more new ones in order to pay off debts. You are not taking out any personal loans or using them for anything else other than paying off debt. 

These loans are designed for people with many different credit cards, who have a hard time paying off the debts on each one. They offer a way to pay off multiple debts at once and save money on interest. 

🧍 Personal loan is a loan that is offered by banks and other financial institutions that is designed specifically for personal use (such as paying down high-interest debt). It often has higher interest rates than those offered on credit cards and doesn't include repayment plans like those available for credit card consolidation loans.

These options are usually offered by banks and other financial institutions as part of a larger package of services that may include mortgage loans and auto loans. They may also be offered as standalone options that have their own repayment terms.

Completing the Loan Application Process

Once you’ve picked a lender and determined who will be receiving the loan, you’ll need to complete the loan application process. 

The lender will want to see proof of your income and assets so that they can make an accurate decision about your ability to repay the loan.

You’ll have to keep all of your pay stubs, tax records, and investment statements in one place so that they can easily be found when they’re needed.


It’s also a good idea to keep all of your loan applications in one place so that they’re easily accessible when you need to apply for new loans or pay off old ones.

While completing the loan application process, your lender will want to know how much you can afford to repay. You’ll be asked questions about your income and expenses so that the lender can make an accurate estimate of how much you can afford to pay back. 

One of the biggest factors when determining your ability to pay back a loan is your credit score. Your credit score is measured by a formula that takes into account what percentage of your available credit you use each month. The higher the percentage, the lower your credit score, and vice versa.

Once you’ve determined how much you can afford to pay back on one loan, you’ll need to complete all of the necessary paperwork before applying for a consolidation loan. It’s also important that you keep track of all of your payments so that they don’t get lost in between billing cycles. 

Some lenders may require proof that all of your loans are paid off before they will approve a consolidation loan for new debt consolidation purposes, so it’s important that this documentation is present throughout the entire process.

Conclusion 📘

With bad credit, finding a lender who will work with you can be challenging. However, there are ways that you can work with a lender to get your hands on cash even if your credit score isn’t the best. 

Once you’ve found a lender, you’ll need to figure out what your lenders’ lending criteria are and who you’ll be working with. Then you’ll need to decide who will receive the loan, such as family members or a charity.