Is it possible to get debt consolidation with bad credit?

30 April2021

Debt consolidation can help people with multiple debts to manage them more effectively, with one monthly payment instead of many. You can consolidate debts if you have bad credit, but the right way to consolidate them depends on your situation.

'Debt consolidation' doesn't have to mean 'debt consolidation loan' - there are various different ways to bring your debts together so you make just one payment towards them per month.

Debt consolidation loan

A debt consolidation loan pays off all your existing unsecured debts, leaving you with one larger loan and one repayment to make per month.

It can make your debt repayments more affordable if you spread them over a longer period, but you'll be paying your debt back for longer - and that might mean you end up paying more interest too.

You'll only be able to get a debt consolidation loan if you can afford the monthly repayments and your credit rating is good enough. If you have bad credit, lenders might not feel confident you'll repay the money. A debt consolidation loan, therefore, is probably more likely to help someone with a fair-to-good credit rating.

Enter your details here to apply for a debt consolidation loan.

However, there are other ways to consolidate debts into one payment per month with bad credit.

Debt management

Debt management is a type of debt consolidation offered by debt management companies: you pay them one sum every month (which includes their fee) and they pay off each of your unsecured lenders for you.

Debt management is a new agreement you could come to with your unsecured lenders when you need to lower your monthly payments. You can do this by spreading your repayments out over a longer period, which does leave you in debt for longer.

It damages your credit rating for six years when you lower your repayments and can increase the amount of interest you repay overall. Debt management is more likely to help someone with a poorer credit rating.

Click here to get a debt adviser to call you and tell you about debt management.

IVA (Individual Voluntary Arrangement)

An IVA is a legally binding arrangement you could come to with your lenders when you cannot afford to repay your unsecured debts in full. Under the arrangement you repay whatever you can afford and your lenders write off the rest when your IVA reaches a successful conclusion. Lenders don't have to agree to an IVA, but if they do and you're a homeowner, you might have to release equity to help you repay as much as you can afford.

An IVA is another sort of debt consolidation, because you make one payment every month for the full term of the IVA. However, an IVA is a form of insolvency and it has a big impact on the credit records of people who enter into one. At the same time, unlike a debt consolidation loan or debt management, you would not have to repay your unsecured debts in full when you enter into an IVA.

An IVA is most likely to help people with bad credit and a lot of debt that they cannot afford to repay in full.

In summary, there is more than one way to consolidate your debts and the right option depends on your personal circumstances. Enter your details here to speak to a debt adviser about your debt consolidation options.

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