Consolidating debts by taking out a new loan can be one of the best ways to get back on solid financial ground. Debt consolidation loans allow many consumers to pay off high-interest accounts that have burdensome monthly minimum payments.
The financial flexibility that results can enable a debtor to start paying down principal a lot sooner. It can also make it easier to balance a monthly budget to avoid adding to the total.
Making use of services available at debtconsolidationnearme.com should highlight whether a debt consolidation loan will make sense for a given household. Unfortunately, not everyone qualifies for this type of support, although many debtors do. Become familiar with the five most common reasons why people get declined for debt consolidation loans, and you will be better positioned to use this frequently powerful tool.
- Poor Credit History
Many people who apply for debt consolidation loans have already run into significant financial difficulties. Debtors who miss payments on existing loans or exceed their credit limits will make lenders less inclined to offer help.
It will often be helpful to review credit reports compiled by at least a couple of the major agencies before even applying for a debt consolidation loan. While lenders who offer this type of financing tend to be flexible, they always have their limits. Taking care of any readily addressable issues on a credit report will make it easier to qualify for a debt consolidation loan.
- Overly Low Income
Even people with unblemished credit reports sometimes get rejected after applying for debt consolidation loans. Lenders like to see not only a record of responsible credit usage but also evidence of the financial means needed to pay back any amount they are being asked to extend.
That typically means looking at a metric called the “debt-to-income ratio.” Someone whose existing debts have already driven this figure sky-high will generally find it difficult to obtain a debt consolidation loan.
Finding ways of boosting a household’s income, even if only temporarily, will make a rejection on this account less likely. Otherwise, it will normally be best to scrimp and save in order to pay down existing debts some amount before applying again for a consolidation loan.
- A Lack of Collateral
Unsecured debt drives much of the demand for consolidation loans. It will often be easiest to obtain a secured loan when seeking to consolidate a number of debts that have become collectively onerous.
That takes having some sort of collateral, however, whether that means equity in a home or a certificate of deposit at a bank. Borrowers whose applications are declined because of lacking collateral can generally seek out other types of debt consolidation loans.
- Too Much Recent Borrowing
Take on too much debt too quickly, and other lenders will inevitably become wary. It will normally be best not to apply for other types of credit for some time before seeking a debt consolidation loan.
- Excessive Existing Debt
It can seem almost unfair, but debtors with high balances on a number of credit cards or other accounts typically find it most difficult to obtain debt consolidation loans. Paying some of these down before applying will generally make approval more likely.
There are other reasons why consumers sometimes get refused debt consolidation loans, but these are five of the most common. Fortunately, most of these issues can be avoided or resolved with a bit of planning and preparation.
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