Can You Get Debt Relief With Bad Credit?

By Gabriel Rodríguez MONEY RESEARCH COLLECTIVE

March 28, 2025 10:48 AM

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If you’re looking for debt relief options, chances are you have missed payments, high balances or accounts in collections — all factors that negatively impact your credit score.

But a low credit score often limits your access to traditional debt solutions, making it harder to qualify for loans or favorable repayment terms. The good news is that several debt relief alternatives exist for individuals with poor credit.

Read on to learn how bad credit can affect your access to debt relief options and explore the options available.

Bad Credit and Its Impact on Debt Relief

Many people seek debt relief when they struggle to keep up with payments due to financial hardship, job loss, medical emergencies or excessive borrowing. But individuals with poor credit often face high interest rates and limited refinancing opportunities, further complicating their path to financial recovery.

Typically defined as a FICO score of below 580, a bad or poor credit score signals to lenders that a borrower is at a higher risk of defaulting. This can make debt relief programs like debt consolidation and debt management plans harder to obtain since they rely on creditworthiness to determine eligibility.

Debt Relief Options for People with Bad Credit

Not all of the options listed below are exclusive for those with poor credit. Debt consolidation, for example, is usually pursued by people with fair or higher credit. Others like debt settlement and bankruptcy carry greater risks, and are typically reserved for those in a difficult financial position.

Debt consolidation loans

Traditional debt consolidation loans allow you to combine multiple debts into a single loan with one monthly payment (ideally at a lower interest rate). This simplifies the payment process and can save you money in the long run. However, individuals with bad credit typically cannot qualify for these loans at favorable terms.

Consolidation alternatives for those with poor credit include:

Secured loans. Using collateral such as home equity or a vehicle can help you secure a loan. While these may be more accessible with bad credit, they risk loss of the secured asset if you fail to keep up with payments.
Co-signer arrangements. Having someone with good credit co-sign a consolidation loan can improve your chances of being approved — note that this places significant responsibility on the co-signer.
Credit union options. Credit unions often have more flexible lending criteria and may offer “payday alternative loans” or small personal loans with reasonable terms.
Peer-to-peer lending platforms. Some online lenders consider factors beyond credit scores and may provide options for those with poor credit. Rates remain high nonetheless.

A consolidation loan can simplify debt management, but you should carefully assess the terms available to you before making a decision. High interest rates may negate any potential benefits of pursuing this strategy, worsening your financial situation.

Debt management plans (DMPs)

A debt management plan (DMP) is a structured repayment program provided by nonprofit credit counseling agencies that consolidates unsecured debts into a single monthly payment. This payment often enjoys reduced interest rates and waived fees.

To set up a DMP, a credit counselor will assess your financial situation and create a tailored repayment plan. Then, they’ll negotiate with creditors in your stead. You only have to make one monthly payment to the agency, which is responsible for distributing the funds to creditors.

A DMP can be especially beneficial for people with poor credit. By consolidating multiple debts into one monthly payment with a clear timeline, it’s easier to manage your finances while reducing the risk of missed payments.

On the other hand, you may experience a negative impact on your credit score since you will be asked to close most (if not all) of your credit card accounts. And keep in mind that these services don’t come for free: most credit counseling agencies charge fees for their services.

Debt settlement

Debt settlement works by negotiating with creditors to accept less than the full amount owed in exchange for resolving the debt. You can take this approach independently or through debt settlement companies, which negotiate on behalf of borrowers for a fee.

Settlement typically resolves debts in two to four years, whereas debt management plans can take as much as five years to complete. There are no credit score requirements for eligibility, making this method accessible even to those with very poor credit.

While this may all sound encouraging, it comes at a hefty cost. In addition to high fees — usually 15-25% of the enrolled debt — and the potential tax liability, debt settlement has a significant negative impact on your credit score and offers no guarantee of success. After all, creditors aren’t obligated to settle any debts.

Because settlement represents a more aggressive approach to debt relief, it’s most appropriate if you are already experiencing severe delinquency. Otherwise, the amount of debt you are resolving might not outweigh the impact this strategy will have on your finances.

Bankruptcy

Bankruptcy is a last-restort tactic that provides legal protection from creditors and can eliminate or restructure debts under court supervision. It represents the most powerful form of debt relief but also carries the most serious long-term consequences. Namely, it severely impacts your credit and stays on your credit report for up to 10 years, depending on the type of bankruptcy.

While this method has its drawbacks, it also provides a legal fresh start and prohibits further collection activity on discharged debts. If your debt is overwhelming and your assets far and few between, it may represent the most practical path to financial recovery despite its downsides.

Chapter 7 Bankruptcy liquidates non-exempt assets to pay creditors and typically eliminates most unsecured debts within three to six months. It remains on credit reports for 10 years and requires meeting certain income criteria.

Chapter 13 Bankruptcy establishes a three-to-five year repayment plan based on your disposable income and lets you retain assets while repaying a portion of your debt. It remains on credit reports for seven years and is available to those who don’t qualify for Chapter 7.