Skip to content

Debt Consolidation Loans for Bad Credit History – Your Best Options in 2025

Introduction

If you’re struggling with multiple debts and a poor credit history, you might feel like there’s no way out. Constantly juggling repayments, dealing with high interest rates, and facing lender rejections can make financial recovery seem impossible.

But debt consolidation loans for bad credit could be the solution you need.These loans allow you to combine multiple debts into a single monthly payment, potentially reducing interest rates and making repayments more manageable. However, securing a consolidation loan with bad credit comes with challenges. Lenders may charge higher APRs, and approval isn’t guaranteed.In this guide, we’ll break down:

✅ How debt consolidation loans work
✅ The best UK lenders for bad credit consolidation loans
✅ How to improve your chances of approval
✅ Alternative debt solutions if consolidation isn’t right for you

By the end, you’ll have a clear understanding of your best options for consolidating debt with a bad credit history in 2025

What Are Debt Consolidation Loans for Bad Credit?

debt consolidation loan is a type of personal loan designed to help you combine multiple debts into a single repayment. Instead of managing multiple credit cards, payday loans, or other high-interest debts, you take out one new loan to pay them off. This means you’ll have just one lender and one repayment schedule to manage.

For borrowers with bad credit, these loans can be a lifeline—but they also come with higher risks and costs. Lenders see bad credit borrowers as high-risk, meaning they often charge:

  • Higher interest rates (APRs) compared to standard loans
  • Stricter lending criteria (some may require collateral or a guarantor)
  • Lower borrowing limits depending on your creditworthiness

Types of Debt Consolidation Loans

There are two main types of consolidation loans available in the UK:

  1. Secured Debt Consolidation Loans
    • Requires collateral (e.g., home, car, or valuable asset)
    • Lower interest rates but risk losing your asset if you default
    • Ideal for homeowners or those with valuable assets
  2. Unsecured Debt Consolidation Loans
    • No collateral required, but higher interest rates
    • Approval depends on your credit score and income
    • Best for renters or those who don’t want to risk assets

Before applying for a debt consolidation loan, it’s essential to compare different lenders, check eligibility requirements, and consider all potential risks.

How Do Debt Consolidation Loans Affect Your Credit Score?

Debt consolidation loans can impact your credit score in both positive and negative ways. Whether they help or hurt your credit depends on how you manage the loan and your overall financial habits.

Can Debt Consolidation Improve My Credit?

✅ Reduces Credit Utilization – If you use a loan to pay off high-credit-utilization credit cards, your credit utilization ratio decreases, which can boost your credit score.

✅ Helps You Avoid Late Payments – Since you’re replacing multiple payments with just one, there’s less risk of missing a payment, which improves your payment history (35% of your credit score).

✅ Shows Responsible Credit Management – Successfully handling a consolidation loan over time can demonstrate financial responsibility to future lenders, improving your chances of securing better financial products later.

Risks of Debt Consolidation for Bad Credit Borrowers

⚠️ Initial Credit Score Drop – When you apply for a consolidation loan, lenders perform a hard credit check, which can temporarily lower your score.

⚠️ New Loan = New Account Age – The age of your credit accounts impacts your credit score. If you close multiple old accounts after consolidating, it could reduce your overall credit age, potentially lowering your score.

⚠️ Missed Payments = Worse Credit – If you fail to make payments on your new loan, your credit score can drop further, making it even harder to secure loans in the future.

🔹 Pro Tip: To avoid a negative impact, keep your old accounts open (if possible) and set up direct debits to ensure timely payments.

Best Debt Consolidation Loans for Bad Credit in the UK (2025)

Finding the right debt consolidation loan when you have bad credit can be challenging, but some UK lenders specialize in offering solutions for borrowers with poor credit histories. Below, we’ve listed some of the best debt consolidation loan providers in 2025, including their key features and eligibility criteria.

Secured vs Unsecured Debt Consolidation Loans – Which One Is Right for You?

Before choosing a lender, it’s essential to understand whether a secured or unsecured loan is best for your situation.

Loan TypeProsCons
Secured Debt Consolidation Loan✅ Lower interest rates⚠️ Requires collateral (home, car)
✅ Easier to get approved with bad credit⚠️ Risk of losing the asset if payments are missed
Unsecured Debt Consolidation Loan✅ No collateral needed⚠️ Higher interest rates for bad credit borrowers
✅ Faster approval process⚠️ More difficult to qualify for large loan amounts

🔹 Best for homeowners → Secured loan (lower interest but higher risk)
🔹 Best for renters or those without assets → Unsecured loan (higher interest but no risk of losing assets)

Top UK Lenders Offering Debt Consolidation Loans for Bad Credit in 2025

Here are some of the best UK debt consolidation loan providers for bad credit borrowers in 2025:

1. Norton Finance

✔️ Best for: Homeowners looking for secured debt consolidation loans
✔️ Loan Amount: £3,000 – £250,000
✔️ Interest Rates: From 6.4% APR (varies by credit rating)
✔️ Repayment Terms: 1 – 30 years
✔️ Key Feature: Accepts poor credit applicants, including those with CCJs or defaults

2. Likely Loans

✔️ Best for: Fast approval of unsecured loans for bad credit
✔️ Loan Amount: £500 – £5,000
✔️ Interest Rates: 39.9% APR Representative
✔️ Repayment Terms: 12 – 60 months
✔️ Key Feature: No guarantor required, fast online application process

3. 118 118 Money

✔️ Best for: Medium-sized debt consolidation with flexible repayment options
✔️ Loan Amount: £1,000 – £5,000
✔️ Interest Rates: 34.8% APR Representative
✔️ Repayment Terms: 12 – 36 months
✔️ Key Feature: No early repayment fees, pre-eligibility check without a hard search

4. Amigo Loans (Guarantor Loan Option)

✔️ Best for: Borrowers with very poor credit who have a guarantor
✔️ Loan Amount: £2,000 – £10,000
✔️ Interest Rates: 49.9% APR Representative
✔️ Repayment Terms: 12 – 60 months
✔️ Key Feature: Requires a friend or family member as a guarantor, which improves approval chances

5. StepChange Debt Charity (Alternative to Loans)

✔️ Best for: People struggling to get loan approval
✔️ Loan Alternative: Debt Management Plan (DMP)
✔️ Key Feature: Consolidates debt payments without taking out a new loan, reducing risk for those with severe financial difficulties

How to Choose the Best Debt Consolidation Loan for Bad Credit

When selecting a debt consolidation loan, consider:

✔️ Interest Rates – Higher APRs are common for bad credit, but compare offers to find the lowest available.
✔️ Loan Term Length – Longer terms mean lower monthly payments but higher total interest paid.
✔️ Pre-Eligibility Checks – Use soft searches to see your chances of approval without damaging your credit.
✔️ Repayment Flexibility – Some lenders charge penalties for early repayments, while others allow flexibility.

🔹 Pro Tip: Use a loan eligibility checker before applying to see which lenders are most likely to approve you.

How to Get Approved for a Debt Consolidation Loan with Bad Credit

Getting a debt consolidation loan with bad credit can be challenging, but there are several ways to improve your chances of approval. Many lenders consider factors beyond just your credit score, so taking the right steps before applying can make a big difference.

1. Check Your Credit Report for Errors

Before applying for any loan, review your credit report from the UK’s three main credit reference agencies:

✅ Look for incorrect defaults, outdated late payments, or duplicate accounts.
✅ If you find errors, dispute them immediately—this can boost your score before applying.

🔹 Pro Tip: If your credit file has mistakes, use a statutory dispute letter to get them removed before applying for new credit.

2. Improve Your Debt-to-Income Ratio (DTI)

Lenders assess your debt-to-income (DTI) ratio to determine if you can afford repayments. If your monthly debt payments take up too much of your income, lenders may reject your application.

✅ Try to pay off small debts before applying.
✅ Increase your income (if possible) to improve your DTI.
✅ Avoid taking on new debts in the months before applying.

🔹 Example: If you earn £2,500 per month and pay £1,250 toward debts, your DTI is 50%—too high for many lenders. Reducing this to below 40% can improve approval odds.

3. Apply With a Guarantor

If your credit score is very low, applying with a guarantor can help you secure a better loan offer.

✔️ A guarantor is someone (a friend or family member) who agrees to cover repayments if you miss them.
✔️ Lenders see guarantor loans as lower risk, so you may qualify for a higher loan amount or lower APR.
✔️ Popular UK guarantor loan lenders include Amigo Loans and UK Credit.

🔹 Caution: Your guarantor must have a strong credit history and financial stability—otherwise, they won’t qualify.

4. Consider Alternative Lenders

Traditional banks may reject bad credit applicants, but there are alternative lenders that cater to those with poor credit.

✔️ Credit Unions – Offer fairer interest rates and may be more flexible.
✔️ Peer-to-Peer Lending – Platforms like Funding Circle connect borrowers with private lenders.
✔️ Specialist Bad Credit Lenders – Providers like 118 118 Money and Likely Loans cater to subprime borrowers.

🔹 Pro Tip: Check if lenders allow a soft credit check before applying—this won’t impact your credit score.

5. Avoid Payday Lenders & High-Interest Short-Term Loans

If you’re struggling with bad credit, avoid payday loans and predatory lenders.

⚠️ Payday loans come with APRs exceeding 1,000%—they can trap you in a cycle of debt.
⚠️ Some lenders claim to offer bad credit loans but charge excessive fees and penalties.
⚠️ High-cost short-term loans can harm your credit further if you can’t keep up with repayments.

🔹 Instead of payday loans, consider:
✔️ Speaking to StepChange or Citizens Advice for free debt support.
✔️ Looking into debt management plans (DMPs) as a safer alternative.

6. Build Your Credit Score Before Applying

If you can wait a few months before applying, take steps to boost your credit score:

✅ Register on the Electoral Roll – Being on the electoral register improves your creditworthiness.
✅ Use a Credit-Builder Card – A small-limit credit card (like Capital One’s Classic Card) can help rebuild credit.
✅ Make Payments on Time – Set up direct debits to ensure you never miss a due date.
✅ Reduce Credit Utilization – Try to use less than 30% of your available credit limit.

🔹 Example: If your credit limit is £1,500, keeping your balance below £450 improves your score

Final Thoughts on Loan Approval for Bad Credit Borrowers

✔️ Check your credit report and fix any errors before applying.
✔️ Reduce your debt-to-income ratio to improve your eligibility.
✔️ Consider applying with a guarantor if your score is very low.
✔️ Avoid payday loans and high-interest lenders at all costs.
✔️ Work on rebuilding your credit to secure better loan options.

If you follow these steps, you’ll improve your chances of getting a debt consolidation loan, even with a bad credit history.

Alternatives to Debt Consolidation Loans for Bad Credit

If you have bad credit and are struggling to secure a debt consolidation loan, don’t worry—there are alternative ways to manage your debt. Depending on your financial situation, some options might even be better suited than taking on another loan.

Here are the best alternatives to debt consolidation loans for bad credit in the UK:

1. Debt Management Plans (DMPs) – Lower Monthly Payments Without a Loan

Debt Management Plan (DMP) is an informal agreement between you and your creditors to reduce monthly repayments and make them more manageable.

✅ No new loan required – Instead, a debt charity or specialist firm negotiates with creditors on your behalf.
✅ One monthly payment – You make a single payment to the DMP provider, who distributes it to your creditors.
✅ Potential interest freeze – Some creditors agree to freeze interest or reduce charges.

⚠️ Downside: DMPs don’t write off debt, and some creditors may not agree to reduced payments.

🔹 Best for: People struggling with multiple unsecured debts but want to avoid formal insolvency.

Where to get help:
✔️ StepChange Debt Charity – Free DMP setup
✔️ PayPlan – Free debt advice and solutions

2. Individual Voluntary Arrangement (IVA) – Legally Reduce Your Debt

An Individual Voluntary Arrangement (IVA) is a legally binding agreement where you repay a portion of your debts over 5-6 years, and the rest is written off.

✅ Debt write-off – Any remaining debt after the IVA ends is cleared.
✅ Single affordable payment – Your repayments are based on what you can afford.
✅ Stops creditor action – Creditors cannot chase you for payments or take legal action.

⚠️ Downside: IVAs affect your credit score for six years, and not all debts can be included (e.g., student loans, court fines).

🔹 Best for: People with over £5,000 in debt who are struggling with repayments.

Where to get help:
✔️ National Debtline – Free IVA advice
✔️ Insolvency Service – Government-approved IVA providers

3. Balance Transfer Credit Cards – A Short-Term Debt Fix

balance transfer credit card lets you move existing credit card debt to a new card with 0% interest for a set period (usually 12–24 months).

✅ 0% interest period – Gives time to pay off debt without interest.
✅ Lower monthly costs – Helps manage debt without needing a loan.
✅ Improves credit score – If used wisely, it reduces overall interest payments and supports credit rebuilding.

⚠️ Downside: Requires fair to good credit for approval, and 0% offers are limited for bad credit applicants.

🔹 Best for: Those with credit card debt who can pay it off within the 0% interest period.

Best UK balance transfer cards:
✔️ Barclaycard Platinum 0% Balance Transfer – Up to 22 months 0% interest
✔️ MBNA Long 0% Balance Transfer Card – Up to 20 months 0% interest

4. Debt Relief Order (DRO) – A Low-Cost Alternative to Bankruptcy

Debt Relief Order (DRO) is a government-backed solution for people with low income and minimal assets who cannot afford to repay debts.

✅ Debt frozen for 12 months – No repayments during this period.
✅ Debt written off – If your financial situation hasn’t improved, remaining debt is cancelled.
✅ Legal protection – Creditors cannot take action against you while the DRO is active.

⚠️ Downside: DROs stay on your credit file for six years, and there are eligibility criteria:

  • You must owe less than £30,000
  • You cannot own a home
  • Your disposable income must be less than £75 per month

🔹 Best for: People with very low income and no realistic way to repay debts.

Where to apply:
✔️ StepChange – Free debt relief order assistance
✔️ Citizens Advice – Help with applying for a DRO

5. Snowball vs. Avalanche Method – DIY Debt Repayment Strategies

If you can’t get a consolidation loan but want

to tackle your debt independently, two popular strategies can help:

Snowball Method – Small Wins, Big Motivation

✅ Pay off the smallest debts first, regardless of interest rates.
✅ Once a debt is paid off, roll that payment into the next smallest debt.
✅ Creates momentum and motivation by seeing quick wins.

🔹 Example:

  • Credit Card A: £500 balance (10% APR) → Pay this off first
  • Credit Card B: £1,500 balance (15% APR)
  • Personal Loan: £5,000 balance (12% APR)

Once Credit Card A is cleared, redirect that payment to Credit Card B while continuing minimum payments on other debts.

⚠️ Downside: You might pay more in interest overall since high-interest debts are tackled later.

Avalanche Method – Save More on Interest

✅ Pay off the highest-interest debt first, saving more money in the long run.
✅ Continue making minimum payments on other debts while attacking the highest APR.

🔹 Example:

  • Payday Loan: £700 balance (39% APR) → Pay this off first
  • Credit Card: £1,500 balance (25% APR)
  • Personal Loan: £5,000 balance (12% APR)

By clearing the highest APR first, you reduce overall interest payments and get debt-free faster.

⚠️ Downside: It can take longer to see results, which may feel less motivating compared to the snowball method.

🔹 Best for: People who are disciplined and focused on saving money over time.

6. Government Support & Free Debt Advice

If you’re unsure which option is best, free debt help is available in the UK.

📞 StepChange Debt Charity – 0800 138 1111 (Visit StepChange)
📞 National Debtline – 0808 808 4000 (Visit National Debtline)
📞 Citizens Advice – 0800 144 8848 (Visit Citizens Advice)

✅ Get free, confidential advice tailored to your financial situation.
✅ Learn your rights and avoid predatory lenders.
✅ Access debt relief solutions that fit your needs.

Final Thoughts – Should You Get a Debt Consolidation Loan or Try an Alternative?

Debt consolidation loans can be a helpful tool, but they’re not the only solution for managing bad credit debt.

✔️ If you qualify for a low-interest consolidation loan, it can simplify repayments and help improve your credit score over time.
✔️ If you struggle to get approved, consider DMPs, IVAs, or DROs as safer alternatives.
✔️ If you prefer a self-managed approach, use the Snowball or Avalanche method to clear debts gradually.

🚀 Next Steps:
If you’re serious about improving your finances, download our FREE UK Credit Secrets Guide to learn insider strategies for boosting your credit score and accessing better financial products.

🔗 [Get the Guide Here] 

📢 Have questions? Drop a comment below or share this article to help others struggling with bad credit!

Leave a Reply

Your email address will not be published. Required fields are marked *

Exit mobile version