Reasons You May Get Turned Down For Debt Consolidation

Debt Consolidation Options

With lower interest, a single monthly payment, and no immediate ding on your credit score, it is definitely no mystery why people can’t resist applying for a debt consolidation loan. The problem is, however, that a solution with high benefits also has high expectations for borrowers. If you are one of the millions of people denied a consolidation loan, there may still be options, such as debt settlement. While every situation is different, Liberty Debt Relief has narrowed down the most common reasons people may not qualify for such a loan.

Lack of Security

A potential pitfall for people looking into a debt consolidation loan with some banks or credit unions is the possible collateral requirement. Even if the debts you are looking to consolidate are all unsecured — meaning that you did not have to put forth any collateral when you signed up for them — a secured debt consolidation loan requires you to do so.

Most people in excessive debt do not have collateral to offer, but lenders want some kind of insurance that your debt to them will get paid in some way, shape, or form. The offered collateral is usually a car, investments, or some other large financial asset that the lender can cash in if you fail to make your payments. It is also a significant factor in the significantly lower interest rate that collateral loans offer.

Of course, there are plenty of companies out there that offer unsecured debt consolidation options, so it may benefit you to check these out before moving away from this solution. Reach out to Liberty Debt Relief for clear advice today!

Low Credit Score

It is possible to have a good credit score while being in debt. Not being able to do so, however, is a big reason why a lot of people can’t instantly get a debt consolidation loan. Your score is comprised of multiple money management factors, including how often you meet your monthly payments, how often you utilize your current accounts, the time you have held your accounts, and your debt-to-income ratio, all of which lending companies use to determine your ultimate financial value. Having a lower credit score leads companies to believe that you cannot handle your debt and, in turn, makes you a liability as a borrower.

To keep a high credit score and benefit from debt consolidation options, make all of your monthly payments and continue to use your credit cards for small purchases you can afford. For example, use it to pay for groceries and gas, and then simply put the money you would normally use toward those purchases on your card. You can also look for additional income opportunities, such as freelancing or selling miscellaneous items from your home to get additional funds that you can apply to your current debts.

If your score is low because of an error or unfair mark on your credit report, you can seek credit repair assistance. This service includes collecting proof that supports your claim and speaking to creditors on your behalf in order to get them to remove mistakes. It is especially beneficial in situations of identity theft, incorrect late payment marks, and even debt that appears on your report more than once under various creditors due to your debt changing hands.

You Don’t Earn Enough Money

While not all debt relief options have an income requirement, debt some consolidation loans do. The reason lenders do this is so that you can pay off the cost of the loan in a certain amount of time, usually between three to five years. If you cannot prove an income that would allow you to make a payment every month after accounting for your other expenses, including rent, mortgage, insurances, car payments and more, then you likely will not qualify for the consolidation loan.

Luckily, there are plenty of other options that do not require a certain income level. A settlement, for example, can help you negotiate your debt so you pay less than what you originally owed. This can be very beneficial for those who sometimes struggle to make monthly payments.

There is Too Much Debt

Some people simply have too much debt for a consolidation loan to work effectively. This debt relief option is best suited for those who have unsecured debt that is less than 50 percent of their income. That ratio ensures you will be able to afford the lender’s payment guidelines and avoid owing excessive interest or fees. If you do not earn enough of a regular income to make the large payments for a new debt consolidation loan, then it is best to look for other options.

The Solution is out There

Understanding why you can’t simply get a debt consolidation loan right away is important in moving forward with your financial goals. While it may be disheartening at first, consolidation loans are not your only option. Talk to Liberty Debt Relief to find out how we can help you take the next step to eliminate your debt without more loans.