Debt Consolidation Loans for Bad Credit: A Guide to Paying Off Unpaid Bills

Having bad credit doesn't mean you can't qualify for a debt consolidation loan to pay unpaid bills. It just makes approval more difficult and increases the need for collateral. Credit scores are numbers ranging from 350 to 850, according to Privacy Rights Clearinghouse, a nonprofit consumer information company. Scores of 720 or higher are superb, with scores below 620 usually indicating bad credit. However, some companies specialize in loans to people with bad credit. Debt consolidation loans with bad credit cost more in finance charges than loans for people with high credit scores.

Step 1

Order a copy of your credit report from annualcreditreport.com. The website offers free credit reports under the terms of the Fair Credit Reporting Act. Visit the website to view and print your report. Follow instructions listed on the report to order your credit score separately, for a fee.

Step 2

Review your score as you compare it to standards for good and bad credit. Theoretically, it is possible to borrow money for debt consolidation at any score, as creditors make their own lending decisions. However, a bad credit score close to 620 increases chances for approval.

Step 3

Make a list of possible collateral for the loan. Even bad credit lenders may not approve a debt consolidation loan if your score is far below 620. However, the lender may approve the loan if you have collateral such as vacant land, or, ideally, a personal residence with considerable equity. Home equity is the difference between the balance on a mortgage and the fair market value of the home.

Step 4

Apply for a debt consolidation loan with bad credit by seeking a home equity loan or another type of loan secured by collateral. Apply first at traditional banks or credit unions. If the banks will not approve you because of credit ask one of the loan officers for local referrals for lenders comfortable with bad credit borrowers.

Tip

Avoid debt consolidation loans, if possible. It is impossible to reduce debt through borrowing, and some people with debt consolidation loans end up deeper in debt because they create new bills after the consolidation. Slowly paying off bills by earning extra money is a better solution than debt consolidation.

Warning

Bankrate warns that home equity loans are risky. The loans give the lender the right to foreclose on your home if you default on the loan.