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