Why Can’t I Get A Debt Consolidation Loan?

Typically there are a few different reasons people aren’t able to get qualified for a debt consolidation loan—insufficient income, too much debt, and/or credit scores that are too low. Whatever the reason may be, you still need to get debt relief somehow. In this article, we will cover what to do if you need debt relief but get turned down for a debt consolidation loan.

First, Figure Out Why You Weren’t Approved

Debt consolidation lenders have a strong incentive to give you a loan, and most of the time, they’ll do whatever they can to approve you. So if you’ve been declined for a debt consolidation loan, there’s usually a solid reason for it. Occasionally, the reason you’re declined will be something you’re able to address so you can reapply and be approved. Let’s examine the reasons you might have been declined and what you might be able to do about it.

Three Reasons For Debt Consolidation Loan Denial

Reason One: Not Earning Enough Income

The primary way a lender qualifies you for a debt consolidation loan payment is by looking at your current income along with other debt obligations that won’t be included in the consolidation loan, such as a mortgage payment or car payment. If your total debt-to-income ratio with the consolidation loan is too high, you may be declined for the loan.

If this is the case, you may be able to reduce your other debts first and then reapply or get another job that provides enough income to bring your debt-to-income ratio down to where it needs to be.

Reason Two: Not Having A High Enough Credit Score

The second essential factor in qualifying for a debt consolidation loan is your creditworthiness, gauged by your credit score. When your credit score isn’t high enough, your chances of approval decrease.

You may be able to find another lender to offer you a loan, but it will almost certainly be a high-interest loan that costs more in the long run that defeats the purpose of consolidating your debts.

Fixing your credit score is usually a lengthy process, so if this was the reason you were declined, you probably want to seek other options if you desperately need debt relief.

Reason Three: Not Having Collateral

You may be considering a couple of types of loans to consolidate your debt—secured or unsecured loans. Typically, a secured loan is what you’ll be offered if your credit score isn’t high enough. But, if you don’t have any collateral to secure the debt, this type of loan won’t be an option.

If you have to get an unsecured loan because you don’t have collateral, the interest rate may be prohibitively high. Unfortunately, this reason isn’t one that’s easily solved. In these circumstances, you may need to seek more creative alternatives for getting a debt consolidation loan.

What Options Do You Have If You’ve Been Declined?

Get A Co-Signer

If you can’t get approved for a debt consolidation loan by yourself, you may be able to get a close family member or friend to co-sign on the loan with you. This approach can help by adding more income and a better credit score to the loan application, increasing your chances of approval.

That said, this method of getting a debt consolidation loan isn’t a decision that should be made carelessly, as there can be lasting credit impacts if you can’t fully repay the loan—both for you and the co-signer.

Unfortunately, the statistics on debt indicate that the vast majority of loans with a co-signer will at some point necessitate the co-signer to make payments. Obviously, this could cause serious strain on an otherwise healthy relationship, so it’s best to be honest about your true ability to repay the debt without the help of the co-signer.

Get A Home Equity Loan

The recent boom in the housing market has resulted in home prices rising, providing many people the ability to pay down their credit card debts by getting a home equity line of credit. If you happen to have equity in your home, these loans can be a low-interest alternative for consolidating your higher-interest debts such as credit cards.

While it might not be possible for you to get approved for a debt consolidation loan with a low enough interest rate, a home equity loan might be an option because your home is providing security for the lender, putting them in a much stronger position than a lender that’s offering credit with nothing to back it up if you can’t repay the debt in full.

Create A Strict Budget And Stick To It

A common reason many folks wind up needing to consolidate their debt is that they fail to properly track and plan their spending in relation to their income. This often leads to debt growing more and more every month until the interest charges become too much to keep up with. This can snowball the debt even more rapidly when it’s on revolving credit accounts like credit cards.

The best course of action if you’ve been denied a debt consolidation loan is to take stock of your true monthly expenses and spending and prioritize which items are necessary and which you can reduce or cut out altogether. This alone may be able to open up enough resources to slowly become debt-free.

Need A Debt Consolidation Loan? Call Alleviate Financial Today!

If you’re considering a debt consolidation loan or have been denied one, Alleviate Financial Solutions has the experience to help you determine what the next best step is for your financial future.

Whether you need debt consolidation, debt settlement, or even bankruptcy, our seasoned team of debt relief program experts will guide you through whatever process is necessary to finally become debt-free.

Contact the debt consolidation experts at Alleviate Financial Solutions today to learn what your options are! Call Today!