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Debt Consolidation Loans for Bad Credit and Rejection Options

If you’ve been denied a debt consolidation loan, don’t beat yourself up about it. Debt consolidation loans can be difficult to obtain—they often require a good credit score, which is something most people seeking a debt consolidation loan don’t have. Worse yet, they may require collateral, such as equity in a home. And that’s not something you may want to put on the line!

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Reasons You May Be Declined for a Debt Consolidation Loan

There are five main reasons why finding debt relief through a consolidation loan may be elusive.

  • No Collateral 

Lenders worry about getting their money back, so they may require you to provide some form of collateral, such as your home. That’s quite a gamble if you’re having a hard time managing your money. And while there are unsecured loans, most have interest rates of 30% or higher, worse than a typical credit card, which makes it a bad option.

  • Poor Credit Score

Having a low credit score, often caused by high debt balances or payment defaults, makes lenders nervous and more likely to turn you down. There are other variables which you can read about in our credit score blog.

Two people considering their options for a debt consolidation loan for bad credit


  • Not Enough Income

Payments on debt consolidation loans are usually greater than credit card minimums. If a lender knows you’re already having trouble making minimum payments based on your income, they’re likely to turn you down out of concern that you won't be able to afford the monthly loan payment. 

  • Not Enough Credit History

Lenders like a long credit history, as it serves as an indicator for how you’ll manage the funds they’ll be providing you. For a look at your credit history, you can get a free copy of your credit report from Equifax or TransUnion once a year (don’t worry, it won’t affect your credit score).

  • Too Much Debt

Other than your unsecured debt, lenders may determine that you have too much other debt (mortgages, second mortgages, car payments, student loans, etc.). If these combined debt payments, along with the proposed debt consolidation loan payment, are greater than 40% of your income, most lenders may deny your request.

Person stressed by their bad credit


Debt Consolidation Loans for Bad Credit vs. Debt Consolidation Program

If you are approved, obtaining a debt consolidation loan from even the best debt consolidation loan companies might not be a good solution.

When you get a debt consolidation loan, you’re usually allowed to keep your credit cards, which will now have zero balances. That can make it very tempting for you to use them and rack up debt again. Then, not only will you have that big debt consolidation loan to pay back month-to-month, but also credit card payments. This makes a difficult financial situation much worse, and defeats the purpose of a debt consolidation loan entirely.

If you can’t get a debt consolidation loan with a relatively low interest rate, or if you’re worried about your ability to manage your credit even after getting the loan, there is an alternative solution: A Debt Consolidation Program.

What Is a Debt Consolidation Program?

A Debt Consolidation Program (DCP) is an arrangement where you work one-on-one with a certified Credit Counsellor from a not-for-profit credit counselling agency who negotiates with your creditors on your behalf to reduce or stop the interest on your debt. They will also consolidate all of your unsecured debt into one easy-to-manage monthly payment that’s based on your current income and monthly expenses, so you can pay off your debt and still have enough money for groceries and all your other needs. This payment then gets distributed to all of your creditors that are on the Program.

Benefits of a Debt Consolidation Program

The benefits of a Debt Consolidation Program are plentiful:

Save hundreds, if not thousands of dollars in interest.

No more collection calls.

Don't have to deal with creditors—we do this for you!

Pay off debt by making monthly payments you can afford.

No additional loan required.

A professional works with you every step of the way, rooting for your success.

Get a personalized budget, eliminating the emotional and psychological pain of budgeting.

Get out of debt. Get back into life.

To speak to someone right now, call: 1 (800) 267-2272

Or, request a callback from one of our certified credit counsellors. It's free.