Denied For A Debt Consolidation Loan? Follow These 5 Tips (2024)

If you’ve been denied a debt consolidation loan, you probably feel like your back is against the wall. Take a deep breath, it’s not as bad as you might think because you have options.

When you first hear about debt consolidation loans, they might sound like the answer to your prayers. Asimple, streamlined way to make your debt payments manageable, pay less to your creditors than you owe, and achieve financial wellness!

Not so fast; debt consolidation loans aren’t for everyone. Not to mention, being declined for one can be disheartening. You got your hopes up and applied, only to be rejected. Now what?

People Also Read

Debt Consolidation

Should I choose debt management or debt settlement?

Debt Consolidation

Navigating the Debt Consolidation Landscape: Government vs. Private Options

Five things to do if you’re declined for a debt consolidation loan.

1. Figure out why you were declined.

Debt consolidation lenders don’t decline loans for no good reason. On the contrary, the more loans they hand out, the more money they make. So, they have plenty of incentive to approve as many loans as they can to qualified borrowers. If a lender declined your loan application, there was a valid reason. Understanding why won’t just give you closure; it will also help you understand how debt specialists view your financial situation. That way, you’ll know how to improve it before seeking another debt consolidation option.

There are three common reasons people are refused a debt consolidation loan: lack of income, too much debt, and poor credit scores.

You were denied because of your low income

You can’t expect your debt consolidation lender to take you at your word that you can afford a loan. They need proof that you can meet the monthly payments. To that end, they look at your current income level in relation to your expected loan payments. If the lender doesn’t think you’re up for the task, your chances are slim. You can ask for a smaller loan, but that probably won’t do the trick.

You have too much debt

Aside from your current income level, lenders also look at how much debt you currently have on your plate before offering a personal loan. If they think you’re already struggling, they’re unlikely to offer you more. It’s a good idea to make your lender aware of the purpose of your personal loan. This can make all the difference between hearing a “yes” or a “no.” You could also seek out a lender that specializes in debt consolidation, as they might be more understanding about your sizeable debt.

Your credit score is too low

Your credit score is an indication of your creditworthiness. Are you a good candidate to borrow money? Can you be trusted to keep up with the payments? If your credit score is low, so are your chances of approval.

Unfortunately, there aren’t many short-term solutions if you have a low credit score. You might be able to convince your lender to offer you a loan, but it will likely be at a high-interest rate. This approach will cost you more money in the end and can defeat the purpose of getting a debt consolidation loan in the first place.

Once you understand why you were denied a debt consolidation loan, it’s time to take the next step: come up with a viable alternative.

2. Make a budget and live with your debt as well as you can

If you’re not currently eligible for a debt consolidation loan, you need to figure out an alternative solution— at least in the short term.

If you don’t already have a budget, make one to get a handle on your finances. List every source of monthly income on a spreadsheet. If you’re an hourly employee an educated guess is fine, you won’t be too far off the mark. Then deduct your fixed expenses (rent, car payment, etc.) and your variable expenses (utilities, groceries, gas, etc.).

There are a few options for how to use the excess money. You can give yourself a buffer by socking away as much as you can afford. That way, you no longer need to rely so heavily on credit and drive yourself deeper into debt.

You can also allocate the funds towards paying off your debts. By strategically adding more than the minimum monthly payment, you can spend less on interest and pay it off sooner.

There are two basic approaches to this strategy, each with their own pros and cons.

The first is the “debt snowball.” Using this method, you identify the debt with the lowest total balance. While continuing to make your minimum monthly payments, you add as much extra money as possible. This strategy enables you to eliminate one of your debts quickly, freeing up more of your income to pay off the next-lowest debt. Hence, it’s a snowball effect.

The second approach is the “debt avalanche.” Like the snowball, you choose which debt to pay off first. But this time you identify the debt with the highest interest rate and focus on eliminating it. It might take you longer. But the avalanche should save you the most money over time since it removes your highest sources of interest first.

Now that you’re armed with important information, do you think you can get out of debt on your own? Do you still need outside help? If you need a hand, help is a phone call away.

3. Talk to a credit counselor to help repair your credit

Let’s say you were declined for debt consolidation due to a low credit score and large amount of debt. If you’re still curious about your debt consolidation options, you need to come up with a plan to get a handle on things. Sometimes, seeking professional help is your best bet.

Credit counselors are professionals who help people struggling with debt figure out their next move. Many work for non-profits and offer free credit counseling services to those who qualify.

When you make an appointment for a free initial credit consultation, you’ll sit down with a counselor who asks questions to get a snapshot of your finances. From your current income and debt levels to your total expenses and assets, your counselor will work with you to lay everything out in a way you can easily understand.

Once your counselor understands the full financial picture, they can walk you through your options. They may discuss the benefits of debt consolidation loans with you as well as other options, such as debt management plans. They will also walk you through ways to improve your credit score so that you have a better chance of eligibility moving forward.

Meeting with a credit counselor should arm you with all the information you need to ascertain your best course of action. If the solution is a debt consolidation loan, your next step should be to improve your credit and apply again.

4. Build up your credit and reapply

If you’re denied your first debt consolidation loan, sometimes the best option is to give it a second go. Re-apply and see what happens.

Before that, you should hedge your bets. As already discussed, there are three major reasons why people are denied debt consolidation loans. They don’t make enough money to keep up with the payments; they have too much debt to get the loan, or their credit score was too low to qualify.

The answers to the first two problems are clear. If your income is low, you should seek employment that is more lucrative, ask for a raise, or supplement your income in some other way. If your amount of debt is sky high, work on paying it down by sacrificing some non-essentials.

Increasing your credit score, on the other hand, can be a much thornier issue. You can’t wave a magic wand and make bad debt disappear overnight, but there are certain rules you can follow to speed things up.

First, make sure you’re paying all your bills on time. Late payments are one of the most common reasons why credit scores falter. If you let them go unpaid long enough, your creditors will get collections agencies involved. Collection agencies are the enemy of credit scores.

Second, do what you can to reduce your debt as much as possible. Lowering debt, in general, is a good idea, but it also plays a large role in your credit score. Your credit utilization ratio measures how much of your available credit you’ve used. The higher it is, the more damaging it is to your credit score. The reverse is also true. The less you use, the better your credit score should be.

Third, try to avoid switching up how you use your credit. Opening and closing credit accounts can damage your credit score, as can certain types of credit checks. You should only keep unused credit cards around If you have the self-discipline to keep them open without running up a tab.

Fourth, be patient. You can’t rebuild your credit score overnight. That goes double if there are negative marks on your credit report such as a bankruptcy or foreclosure. Those types of items stay on your credit report for years and can drag your score way down, even if they’re the only things that currently count against you. Once they come off your report, you’ll be in much better shape.

As your credit score slowly climbs, you’ll be better situated to re-apply for a debt consolidation loan. If you gain approval the second time around, that’s great! If not, there are other options to fall back on.

5. If all else fails, consider these options

If you’re still denied a debt consolidation loan, you’ll probably be ready to throw in the towel. But don’t because there’s still hope—including balance transfer credit cards, debt settlement, and more.

With balance transfer credit cards, you open a new credit card that’s offering a 0% introductory APR. For a set period, the balance on the card will not accrue interest, meaning that every dollar you pay goes towards reducing your total balance. Use that card to pay off your other debts but be sure time doesn’t run out before the introductory APR expires. It’s essentially the same idea as a debt consolidation loan.

Debt settlement is a very different animal but it’s a great fit for larger debts. You work with a company that negotiates with creditors on your behalf. Instead of paying your creditors, you make monthly deposits into an FDIC insured savings account solely in your name. If creditors begin blowing up your phone, the debt settlement company is thereto help take care of those pesky phone calls for you.

Once the money in your savings account builds up, the debt settlement company will approach your creditors on your behalf. They will offer a lump sum that’s usually a fraction of what you owe in exchange for forgiving the rest of your debt. Creditors will often say yes, accepting the easy money now instead of pulling teeth to get the money later.

If you’re still unsure what to do after being denied a debt consolidation loan, call National Debt Relief. An encouraging coach will walk you through your options.

Denied For A Debt Consolidation Loan? Follow These 5 Tips (2024)


Denied For A Debt Consolidation Loan? Follow These 5 Tips? ›

An inadequate income is one of the most common reasons you could be denied a debt consolidation loan. Lenders will compare your monthly earnings to your day-to-day expenses and debt payments. In doing so, they can determine how easily your can cover your financial commitments at your income level.

Why do I keep getting denied for a debt consolidation loan? ›

An inadequate income is one of the most common reasons you could be denied a debt consolidation loan. Lenders will compare your monthly earnings to your day-to-day expenses and debt payments. In doing so, they can determine how easily your can cover your financial commitments at your income level.

Why can't I get accepted for a debt consolidation loan? ›

Insufficient income, a high debt-to-income ratio, and a poor credit score are just some of the many reasons why a debt consolidation loan application may be rejected. Each lender has different eligibility criteria and takes different factors into account – and some specialise in helping customers with bad credit.

Why do I not qualify for a consolidation loan? ›

Consolidation loans are usually amortized over 3 to 5 years. This means that the payments have to be high enough to pay the loan off in 3 to 5 years. If your income can't handle that kind of a payment, you could be declined a consolidation loan.

Why is it so hard to get a consolidation loan? ›

Lenders like to see a credit score of at least 670 for a debt consolidation loan, but probably closer to 700 just to be safe. It's not the only factor that matters, but a low credit score could stop you from getting a debt consolidation loan with reasonable interest rates and terms.

What is the lowest credit score to get a consolidation loan? ›

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.

How to get a loan when no one will approve you? ›

Ask Someone To Co-Sign

Getting a personal loan with a co-signer that has a strong credit score and a solid income can boost your application. Your co-signer – ideally, a family member or close friend – will apply alongside you, and you'll both be responsible for repayment of the loan.

Does everyone get approved for debt consolidation loan? ›

You'll typically need a credit score of at least 700 to qualify for a debt consolidation loan with a competitive interest rate. Although a lower credit score doesn't automatically equal a denial, as some lenders offer loans for bad credit, the borrowing costs will likely be higher.

What qualifies you for debt consolidation? ›

You will likely need good or excellent credit (690 or higher) to qualify.

What score do you need to consolidate debt? ›

Generally, borrowers with scores of 740 or higher will receive the best interest rates, followed by those in the 739 to 670 range. If your credit score is lower than 670, debt consolidation may not be a good option for you.

How hard is it to get approved for a debt consolidation loan? ›

Borrowers with good to excellent credit scores (690 to 850 credit score) are more likely to be approved and get a low interest rate on a debt consolidation loan. Ideally, the consolidation loan should have a lower annual percentage rate than the combined interest rate on your other debts.

Can I get a government loan to pay off debt? ›

While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds. The biggest grant the government offers may be housing vouchers for those who qualify. The local housing authority pays the landlord directly.

What loans Cannot consolidate? ›

Private education loans are not eligible for consolidation. Direct PLUS Loans received by parents to help pay for a dependent student's education cannot be consolidated together with federal student loans that the student received.

What is the best debt consolidation company? ›

Best debt consolidation loans
  • SoFi: Best for fast funding.
  • Upgrade: Best for poor or thin credit.
  • Achieve: Best for quick approval decisions.
  • LendingClub: Best for co-borrowers.
  • Discover: Best for excellent credit.
  • Happy Money: Best for credit card consolidation.
  • LightStream: Best for large loans.

How can I get out of debt with no money and bad credit? ›

How to get out of debt when you have no money
  1. Step 1: Stop taking on new debt. ...
  2. Step 2: Determine how much you owe. ...
  3. Step 3: Create a budget. ...
  4. Step 4: Pay off the smallest debts first. ...
  5. Step 5: Start tackling larger debts. ...
  6. Step 6: Look for ways to earn extra money. ...
  7. Step 7: Boost your credit scores.
Dec 5, 2023

Is it possible to get a loan with a 520 credit score? ›

It is 180 points away from being a “good” credit score, which many people use as a benchmark, and 120 points from being “fair.” A 520 credit score won't knock any lenders' socks off, but it shouldn't completely prevent you from being approved for a credit card or loan, either.

Can you be denied for debt consolidation? ›

Lenders might not advertise it, but most of them have a minimum credit score required to get a loan. If your score is less than 670, you might be out of luck for a debt consolidation loan. Even if you're over 670, a problematic debt-to-income ratio (more on that below) or payment history could derail your loan.

How many times can you apply for debt consolidation? ›

You can have more than one debt consolidation loan at a time, but you'll need to follow your lender's guidelines. Some lenders limit the number of loans you can have at one time, or how soon you can apply for a second loan after receiving the funds from the first.

What credit score do you need for debt consolidation? ›

Check Your Credit Score

The minimum credit score needed to secure a debt consolidation loan ranges from 580 to the mid-600s, depending on the lender. The best terms and rates go to borrowers with scores that are around 700 or higher.

Top Articles
Latest Posts
Article information

Author: Arline Emard IV

Last Updated:

Views: 5554

Rating: 4.1 / 5 (52 voted)

Reviews: 91% of readers found this page helpful

Author information

Name: Arline Emard IV

Birthday: 1996-07-10

Address: 8912 Hintz Shore, West Louie, AZ 69363-0747

Phone: +13454700762376

Job: Administration Technician

Hobby: Paintball, Horseback riding, Cycling, Running, Macrame, Playing musical instruments, Soapmaking

Introduction: My name is Arline Emard IV, I am a cheerful, gorgeous, colorful, joyous, excited, super, inquisitive person who loves writing and wants to share my knowledge and understanding with you.