How can I get a debt consolidation loan with bad credit?

Managing multiple debts can feel overwhelming, especially if your credit score isn’t great. A debt consolidation loan combines all your debts into one payment, often with a lower interest rate.
If your credit is poor, can you still qualify for a debt consolidation loan? The answer is yes, although it may take some effort and planning. You can explore your options and take practical steps with the help of this guide.
What is a Debt Consolidation Loan?
A debt consolidation loan is a type of loan that combines multiple debts into one. Instead of paying several lenders every month, you make one payment to the consolidation lender.
This simplifies your finances and might even reduce your overall interest costs. For more information, see our guides: What are debt consolidation loans? Or Understanding debt consolidation loans.
What are the challenges of getting a loan with bad credit?
Bad credit makes lenders cautious because they view you as a higher risk. This could mean higher interest rates, stricter terms, or outright denial. However, some lenders including Central Trust specialise in working with individuals with poor credit, offering loans tailored to their needs.
Even with poor credit, you can still be eligible for a debt consolidation loan. First, understand the interest rate and other costs a lender may charge you. If you're unhappy with the terms of your current debt consolidation loans, consider improving your credit score. A higher credit score can help you qualify for better loan options.
How can I get a debt consolidation loan with bad credit?
A low credit score may limit your chances of securing a personal loan for debt consolidation. However, approval remains possible with the right approach. If your credit is less than ideal, here are some tips to boost your chances of securing a debt consolidation loan:
Consider a secured loan
A secured loan, also known as a homeowner loan requires an asset, such as your home, as collateral —using your property as security reduces the lender’s risk and may improve your approval odds. However, if you do not keep up repayments on a mortgage or any other debt secured on your home, the lender may possess it.
Compared to unsecured loans, secured loans may offer better terms and lower interest rates. For more information, see our guides on secured loans or the difference between secured and unsecured loans.
Check your credit report
You may be able to improve your credit score before applying for a debt consolidation loan. Whether this is possible depends on how urgent your situation is.
Obtain a copy of your credit report to understand your current credit score. You can get a comprehensive view of your credit health by checking your credit report. Additionally, you can check errors and other things that might be hurting your credit score.
Compare lenders
Check your options before applying for a debt consolidation loan, as some lenders may decline borrowers with poor credit. Research various lenders that cater to people with bad credit and look for those with flexible requirements. Focus on lenders who accept lower credit scores to assess your approval chances and potential loan terms. Whenever possible, complete the initial enquiry process with each lender.
Compare fees, monthly payments, and any other factors that are significant to you. When comparing options, consider the following:
- Loan Terms: Understand repayment periods and penalties for early payments.
- Customer Support: Choose lenders known for good communication and support.
- Reviews: Read reviews to learn from other borrowers’ experiences.
Get a co-signer
You can apply for a joint loan or add a co-signer to your application with certain lenders. When choosing this option, the lender will consider both credit histories before making a decision. A co-signer with a good credit score can strengthen your application, potentially lowering your interest rate. It might also make it easier to obtain favourable terms that are impossible to get on your own.
What are alternatives to debt consolidation loans?
A debt consolidation loan might be a good choice in certain situations. However, it's important to compare options and choose the best deal for your needs. If a debt consolidation loan isn’t an option, consider these alternatives:
Set a new budget and cut expenses
For those with lower levels of debt, adjusting your spending habits can be a straightforward way to free up funds for repayments. Start by creating a detailed budget, cutting unnecessary expenses, and focusing on your debts.
This approach not only helps reduce debt but also fosters better financial habits for the future. While it may take longer to see results, it’s a sustainable and low-risk strategy. You can use our budget planner to start budgeting more easily.
Use snowball and avalanche repayment methods
Debt repayment strategies are excellent for individuals looking to manage multiple debts without taking on new financial products. The snowball method focuses on paying off the smallest debts first, providing quick wins to maintain motivation.
On the other hand, the avalanche method targets debts with the highest interest rates, saving money in the long run. Both methods require discipline and careful budgeting but can be effective tools for debt repayment. For more tips, see our guide on how to manage debt effectively.
Use credit counselling services
Non-profit organisations like StepChange or Citizens Advice offer free credit counselling services to help individuals manage their debts. These services provide expert advice tailored to your circumstances and can guide you towards suitable debt solutions. These services are free and unbiased, making them a helpful first step for anyone feeling overwhelmed by debt. Visit our Payment Difficulties page for a list of organisations that can help.
Summary
Getting a debt consolidation loan with bad credit requires research, preparation, and persistence. By exploring your options and considering alternatives, you can find a path to manage your debts effectively.
At Central Trust, we offer flexible debt consolidation loans from £3,000 to £250,000. If you're considering a secured loan to consolidate your debts, speak with a qualified advisor. Contact us free of charge at 0800 980 6273, or complete our enquiry form, and we will return your call at a convenient time.
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