Debt Consolidation Loans for Bad Credit

One new loan to pay off multiple existing loans, credit cards, and overdraft 💸

• Lower monthly payment – the monthly payment for the new loan should be much less than the combined monthly repayments of all existing credit commitments.

If you have a bad credit score and currently have expensive loan repayments, this is very possible.

• More affordable – the new monthly payment should be comfortably affordable and sustainable for you.

Note, if the debt is over a longer period than the existing loans, whilst the monthly repayments may be less, the total interest repaid could be more in total.

It’s possible, see below 👇

• Many ‘bad credit loans’ are expensive, such as payday, instalment or doorstep loans, so it likely that these types of loans will not be suitable consolidation loans:
  • Expensive rates typically 365% – 1,575%
  • Small loans typically only up to £2,000 maximum
  • Short loan terms up to 12 months, making monthly repayments fairly high.

• Guarantor loans can be more suitable
  • Better rates typically 29% – 54.9%
  • Larger loans up to £15,000
  • Longer loan terms up to 5 years

• Do your homework – once you’ve (1) calculate your total debt (2) calculate your monthly debt costs (3) worked out your budget

To find out is an unsecured or guarantor loan is a viable option for you

1. Reducing total monthly repayments – when your total monthly loan/credit repayments are becoming too much to manage, and a new loan could reduce your total monthly commitment.
2. Debt becomes affordable – if the new lower loan repayment makes takes your debt from being unaffordable, to comfortably affordable.
3. Simplifying your finances – when you need to simplify your finances, where juggling loans, credit cards, and overdrafts are causing stress and missed payments.

When the above reduces your stress and anxiety over your debts, in a sustainable way forward, consolidation can be a good idea.

1. If you cannot afford the new repayments – even if the new loans monthly repayments are lower than your existing debts, if you cannot comfortably afford it this will not solve your debt problem.
2. If monthly repayment is not much lower and total interest costs are higher – it’s possible that you could reduce your monthly payments a little bit, but overall, the loan lasts longer than your existing credit commitments, so the total interest payment is much higher.

In these situations, you’ve not made much positive reduction per month but increased your total commitment – not a good idea.

YES 👍

By consolidating your payday loans into an unsecured loan or guarantor loan, you could

1. Pay lower interest rates
2. Spread repayments over a longer period reducing the monthly payment
3. Make the debt more affordable

To find out is an unsecured or guarantor loan is a viable option for you Get Quotes 

To find out how you can improve your credit score by consolidating your payday loans, see

• Credit Rating Improvement Guide, Chapter 7: How to use loans and credit?

Note, if the debt is over a longer period than the existing payday loans, whilst the monthly repayments may be less, the total interest repaid could be more in total.

It depends 🤔

If you have a damaged credit file already?

• Have your existing debts have become unmanageable?
• Have you missed repayments already?
• By consolidating will you have a new lower payment you can comfortably afford?

When you make all the monthly payments on-time and pay off the debt in full – this will help to repair your credit score.

If you pay off Payday Loans

• Some lenders do not like to lend to those who use payday loans.
• They believe is shows a negative sign regarding money management.

By consolidating payday loans into another loan may not specifically improve your credit score but improve your file in the eyes of some lenders.

If you’ve done your homework and find out that

1. You don’t qualify for a suitable loan, or
2. The loans you’ve had a quote for don’t reduce your monthly commitments, or
3. Your income has gone down so you do not have affordability for a new loan

Then there are other debt options you can consider.

• stepchange.org: Debt Management Solutions
• moneyadviceservice.org.uk: Where to get free debt advice

If you have any other questions

• We have an extensive FAQ section
• Covering things such as Is debt consolidation an alternative to bankruptcy?