How can I consolidate credit card debt with bad credit?

There are several ways to consolidate credit card debt with bad credit, including taking out a personal loan or doing a balance transfer as an authorized user on someone else’s credit card. You could also tap into your home equity. However, succeeding with any of these options is not easy; it’s very possible none of them will work out for you.

Debt consolidation is difficult with bad credit because it’s hard to qualify for lower interest rates than you already have. It’s also hard to get a loan amount that’s high enough to consolidate.

Ways to consolidate credit card debt with bad credit:

• Balance transfer. You won’t qualify for any good balance transfer credit cards, and the 0% APRs that come with them, with bad credit. But if you can get a friend with good credit to open a balance transfer card and add you as an authorized user, you can transfer the balance to the card. The primary cardholder will be responsible for paying, but you can pay them back.
• Unsecured personal loan. Few unsecured personal loans cater to people with bad credit. And the ones that do will have very high interest rates, likely higher than the rates you already have on your credit card. But federal credit unions cap their interest rates at 18% and may accept people with bad credit. In addition, some lenders allow you to apply for a personal loan with a co-signer who has better credit, which would let you qualify for better interest rates.
• Secured personal loan. Some lenders offer personal loans to people with bad credit who put up collateral. The lender can take the collateral if you default, which reduces their risk. It’s possible you may be able to find a secured personal loan with a lower rate than your existing credit card debts. But you risk losing your property as well – don’t put up things like a car if you can avoid it.
• Home equity loan. It’s not impossible to get a home equity loan with bad credit, but it will be difficult since they tend to require credit scores of 700+. But if your home is especially valuable, it may be worth a try. However, home equity loans are secured by your house, so if you default you might face a foreclosure.
• Retirement account. If you have a retirement account, you may be able to take money out of it to pay off your debts. But you’ll have to pay a penalty if you’re below the minimum age to start drawing from it. You can also take a loan from your retirement account without penalty but must pay it back within five years. You probably don’t want to take either of these options for debt consolidation.

You could also ask a family member or friend if they’ll loan you money to pay off your credit card debts. You may be able to pay a lot less interest in this case, but you should make sure that you write up a contract and stick to it.

If no debt consolidation options work for you, there are other ways to handle your debt. For example, you might want to consider settling with your creditor for a lump sum or working out a management plan where you have lower payments or reduced APRs.

Enrolling in a debt management program through a non-profit credit counseling agency is an ideal approach to credit card debt consolidation, especially if you have bad credit. Your chances of acceptance are good and it’ll cost you less in the long run than your other available options.

Most credit counseling agencies are non-profit organizations that will allow you to set up a monthly debt management plan in which you combine your existing debts and make a single payment to the agency. The agency will then forward payment to your creditors.

Acceptance in such a plan is contingent on your ability to make the agreed-upon monthly payment. If you fail to make a monthly payment, your plan could be cancelled. You will usually have to pay a one-time set up fee. Programs also charge monthly fees. Try to find a program with the lowest possible cost per month, as some services may not worthwhile for someone already in debt. For example, InCharge Debt Solutions charges $29 a month and Greenpath has a monthly service fee of up to $36.

Debt management programs such as InCharge, Money Management International and others may waive any monthly fees in cases of extreme financial hardship. Others, like GreenPath, will waive the monthly fee for all enrollees it its “EarnUp” simple payment plan for the first 12 months. Ask if your situation qualifies for a waiver before you enroll.

The best way to consolidate credit card debt with bad credit is through a debt consolidation loan, preferably from a credit union. With a debt consolidation loan, you’ll combine all of your high-interest debt into a single monthly payment. There are no monthly fees like with debt management programs, but you may have to pay a one-time loan origination fee ranging from 1% to 8% of the loan amount. Your credit score will dip slightly from the hard inquiry tied to your loan, but will increase gradually as you continue to pay down your debt.

You have to be a member to join a credit union, but the APRs and fees are often lower than you would get from a traditional bank. Credit unions also tend to have more flexibility when lending to members with bad credit. A loan officer may look beyond your credit score and consider your overall financial situation and any personal issues. If you have a longstanding relationship with the credit union, that could also work in your favor.