How to Consolidate Your Debt if You Have Bad Credit

By Angela Monroe - August 27, 2019

Does paying one debt after another get overwhelming? If you are tired of managing the monthly repayments for several active debts, you can consolidate them into one account. This is feasible even if you have bad credit and cannot easily get a loan. Some lenders offer a bad credit debt consolidation usually through an unsecured personal loan.

How Debt Consolidation Works

Debt consolidation is simply the process of combining all your debts into one loan. This can be done in two ways:

Your lender pays all your creditors on your behalf. In return, you will make periodic (usually monthly) repayments to your lender until you can complete the loan repayment within its agreed term.

You will take out a new loan and use the money to pay off your existing debts.

Aside from getting rid of the hassle of making periodic repayments to several lenders, you can also score a lower interest rate for your new loan and save a significant amount of money on the interest of several existing debts.

Bad Credit Debt Consolidation

If you have a good credit record, debt consolidation won’t be tough because there would be plenty of lenders who are willing to lend you the borrow. However, because you have bad credit, your option is typically limited to securing a bad credit personal loan.

Bad Credit Personal Loan

Unlike traditional personal loans, bad credit lenders do not put too much value on your credit score and history. Instead, they assess your capacity to repay the loan based on your source of income and the amount of income money that you regularly earn. 

The lenders may also require you to pledge any collateral to secure the loan, as well as a co-signer or a guarantor. This person vouches for you and agrees to pay off the loan in case you can’t repay the new loan. You may also be required to provide a substantial down payment.

Since bad credit financing is designed for high-risk borrowers like you, it typically comes an interest rate that’s higher than standard personal loans. However, it may still offer an overall lower rate of interest across your loans. 

A Debt Agreement Is Not a Debt Consolidation

Filing for bankruptcy and entering into a debt agreement with creditors have become a popular option for many borrowers whose debts have become unmanageable. But while it may seem a favourable option for debt-ridden people like you, it’s important to understand that it is not the same as debt consolidation. 

Although a debt agreement combines your debt into a single interest-free repayment plan, it is more of a settlement arrangement than debt consolidation. Under the agreement, you don’t have to pay your debts upfront but you will have to provide dividend payments to your creditors based on your debt agreement contributions. You are also debt-free once you have completed the agreement. However, it is a form of bankruptcy and will appear on your credit file for a minimum of five years counting from the date you enter into the loan agreement.

Benefits of a Bad Credit Debt Consolidation

  • You can focus only on one loan and better manage your repayments.
  • Paying only one loan reduces the overall interest you’re paying, especially if your new loan has a lower interest rate than your existing debts.
  • You can save money because you will only pay the associated fees that come with your loan, instead of paying for several loans and credit cards with separate fees.
  • Your credit score improves with on-time repayments and completing your loan within its agreed term. 

How to Use a Debt Consolidation Loan Effectively

A debt consolidation loan can help you organise your existing debts and improve your financial situation with responsible payments. However, it can worsen your debt problems if not managed the right way.

When taking out a bad credit debt consolidation loan, pay attention to your:

Interest Rate

Your main goal is to save more money on your new loan’s interest rate so do your calculations. Make sure that the interest rate is lower than what you’re paying for on your existing debts. If the interest rate charged on a bad credit debt consolidation loan is too high,  you cannot save money. Thus, debt consolidation is of little value.


The terms on your new loan should meet your debt consolidating-needs. The length of time will dictate the amount you will pay for monthly repayments, including the interest. 

Get a pre-approval if you can. This gives you an estimate of how much amount you can borrow and increases your chances of borrowing from several lenders. 


As you start paying for one loan rather than several debts, you will notice a significant change in your finances. Adjust your budget accordingly. See to it that the extra money you save will be put back towards your repayment, not towards shopping. 


Although you’re expected to pay for associated loan fees, such as processing fee and additional repayment fee, these payments shouldn’t be excessive.


It is important to find a reputable lending company that offers bad credit debt consolidation loan. There are a lot of predatory lenders who exploit the desperate situation of people with bad credit. These loan sharks offer loans in exchange for very high interest rates and fees that are difficult to repay and are likely to exacerbate money problems. 

To find out how fair the loan structure is, see what other lenders are charging for the same loan. Also, research about the lenders you plan on working online. Check out the information on their website or inquire about their loan products via email or over the phone. You can also read their customer reviews on social media and online review sites like Trustpilot.


While a bad credit debt consolidation loan organises debt repayments and cuts down interest and fees, it may not be the ideal solution for everyone. Before taking out this financing, calculate how much money you can afford to repay. Do not also hesitate to get a loan pre-approval if you can. It gives you an estimate of your borrowing power, as well as helps you negotiate for better deals.

Loans For People With Bad Credit offers Bad Credit Personal Loans that can help you finance an immediate need, including debt consolidation. Call us on 1300 769 384 or fill the Bad Credit Loan Pre-Approval form to get started.


See also:

How Long Does It Take to Fix a Bad Credit?

Bad Credit Loan or Credit Card: Which One Should You Get?

What Interest Rates are Typical for Bad Credit Car Loans?

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


No comments yet.

Sorry, the comment form is closed at this time.

  • Quick Quote

  • Related Posts