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Bad Credit and Debt Consolidation

If you’re in the position of thinking about getting a debt consolidation loan, the chances are your finances are possibly not in the best shape. Naturally, if you have a bad credit rating, you are less likely to be able to get the most competitive deals on further credit or lending.


If you have a lot of different debts that you’re struggling to keep on top of, or which have increasingly high interest rates, it can be tempting to consider consolidating them. The right consolidation loan can really help your financial situation both in the short and long term, however the wrong one will likely make it a whole lot worse.

Do the sums

It’s always advisable to shop around and make sure you understand the terms of a consolidation loan. Use one of the many online consolidation calculators to help you work out what the long term impact of the loan will be.

Remember to take into account the interest rates over the whole period of the loan, and work out what your monthly bills will be, what you’ll end up paying back in total, and how long it’s likely to take. Compare this to what will happen if you continue without the consolidation loan, and only go ahead if you’re sure it’ll improve your financial situation.

Bad credit options

There will be lenders willing to give you a loan even if you have bad credit, but be wary as the terms and conditions of the loan may not be ideal. If you have a bad credit rating, this means that giving you a loan presents a greater risk to the lender. This means that, at worst, they will not want to give you a loan at all, and at best, they will give you a loan with less than perfect terms.


To reduce the risk, some lenders may ask you to provide some sort of collateral as security. If you’re a homeowner or even if you have a car, you may be able to use these as collateral for the loan. However, you should think very carefully before doing this, as if you fail to meet that payments for the loan, whatever you’ve used as security will then be at risk.

If the debts that you’re hoping to consolidate are unsecured, i.e. with no collateral, it’s generally recommended that you should avoid swapping this for debt that is secured, as you’re putting your property at risk, so you should think carefully if you’re in this situation.


If you do have bad credit, the chances are any loans that you are offered will have high interest rates. For this reason, you should thoroughly check the terms and rates for any loan you’re considering. Bear in mind that often the interest rates will change over the period of the loan, with the starting rate only for the initial period.

On the whole, if you’re already struggling with debt and have a bad credit rating, a consolidation loan really needs to seriously improve your financial situation to be worth it.

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