If you can’t get a debt consolidation loan, it’s most likely because you don’t have enough income to keep with the payments of the loan or you don’t meet the lender’s credit score requirement. It’s also possible that you don’t satisfy basic requirements such as being at least 18 years old and having a bank account. Any lender that turns you down for a consolidation loan should disclose the reason why your application was rejected, so you shouldn’t have to wonder.
Possible Reasons Why You Can’t Get a Debt Consolidation Loan
You don’t have enough income. To prove that you have enough income, you need to show the lender recent pay stubs, bank statements or tax forms (e.g. W-2, 1099).
You don’t have a high enough credit score. You’ll need to have a credit score of at least 580 to qualify for most debt consolidation loans. If you have insufficient credit history, you could also be denied for a debt consolidation loan.
You have too much debt. Even though debt consolidation loans are used to help reduce debt, having too much debt to start with can prevent you from qualifying for a loan.
You didn’t have collateral. If you apply for a secured loan to consolidate debt, you won’t get approved if you don’t have collateral.
A credit card consolidation loan is a good idea if it reduces the cost of your debt and allows you to repay what you owe sooner than you would otherwise. Furthermore, a credit consolidation loan is the best choice if it will save you more than the top balance transfer credit cards… read full answer.
Credit card debt consolidation loans help put all your balances in one place. But they’re not worth it unless you also get a reduced interest rate relative to what you’re currently paying. Checking with a personal loan provider to see what rates you’re pre-qualified for should give you an idea of whether you’ll actually save money if approved.
If you can qualify for a balance transfer credit card that will accommodate all of your debt and provide a 0% introductory interest rate for 12+ months, that may be a better choice. That’s easier said than done, however, so it’s a good idea to keep your options open.
Credit card consolidation loans are a good idea when they:
Save you money on interest.
Help you get out of debt sooner.
Offer a better deal than balance transfer credit cards.
If you can’t find a credit card consolidation loan that will save you money, or qualify for any good balance transfer cards, there are a few alternatives to consider. A secured personal loan or home equity loan could get you lower rates, but at the risk of losing your property/home if you default. A loan from a friend or relative could get you low rates but could put stress on your relationship. Finally, other debt solutions like settling with your creditors may be helpful.
The best way to consolidate debt is to take out a new loan or credit card that has a lower APR than all of the original debts and then use it to pay off the original debts. This turns multiple monthly payments into one and reduces the cost of the total amount owed, allowing the borrower to get debt-free sooner. The best debt consolidation options will not charge any fees to complete this move, either.… read full answer
4 Ways to Consolidate Debt
Doing a balance transfer to a credit card is the best way to consolidate debt when you owe a relatively small amount and will be able to pay it off within a year or two. Balance transfer credit cards typically have credit limits of $500+, and introductory 0% APRs on balance transfers tend to last for 12-20 months.
Potential 0% APRs
Balance transfer fees
Lots of options
May not give a high enough credit limit
No collateral required
High regular APR after intro rate expires
A personal loan is the best way to consolidate debt for people who can’t or won’t use a home as collateral but still need more funding than a credit card might provide. Plus, personal loan APRs are often lower than the regular APRs on credit cards, so they’re also good for balances that can’t be repaid quickly. Personal loans usually take only about a week to get, too, so you can consolidate sooner than with a home equity loan or HELOC.
No collateral required
May have origination fees
Up to $100k in funding
High maximum APRs
Payoff periods of up to 84 months
Few reasonable options for people with bad credit
Home equity loan
A home equity loan is the best way to consolidate debt if you’re a homeowner who owes a lot and needs a long time to pay it off. It’s also a good choice if you want to score the lowest APRs possible for multiple years. Home equity loans are much cheaper than personal loans, on average, but they require the borrower’s house as collateral. So you have to be confident in your ability to repay a home equity loan.
Potentially large amount of funding
House serves as collateral
Long payoff periods
Not available to people who rent
Low minimum APRs
You may not have enough equity
Lower maximum APRs than HELOCs
Doesn’t offer continuous funding like a HELOC
Home equity line of credit (HELOC)
A HELOC is the best way to consolidate debt for people who want to borrow multiple times without applying for a new loan. HELOCs have a draw period during which the user can borrow, up to their available credit, at any time. HELOCs also require a house as collateral, which means there’s a lot of risk for borrowers.
Best Way to Consolidate Debt Without Hurting Your Credit
The only way to consolidate debt without any credit score damage is having a friend or family member pay it off for you, then owing the debt to that person. That said, debt consolidation doesn’t usually affect your credit much.
Applying for a loan or line of credit should only drop your credit score by 5 to 10 points. And even if debt consolidation hurts your credit in the short term, it can lead to large long-term gains. You’ll be able to reduce your debt load more quickly and build up a good payment history, both of which will help your score.
Other Ways to Consolidate Debt
There are a few other ways to consolidate debt, but they’re not ideal. The first is to use a debt consolidation program. With this option, you don’t take out a loan. Instead, you make one payment per month to a company, which distributes the funds to your creditors. The company also negotiates on your behalf to try to get lower rates. But you’ll have to pay fees to the company, and you may suffer credit score damage because the program might not negotiate with creditors until you have missed a few payments.
Another option is to borrow from your retirement account. But you’ll end up having to pay interest into your account to make up for the time the money wasn’t invested. In addition, you’ll need to pay the loan back in 5 years or face an early withdrawal penalty. The timeline moves up if you lose your job, too. In that case, you’d need to pay the money back by the tax day for the year in which you lost your job.
Ultimately, the best way to consolidate debt for most people will be a personal loan because it provides decent funding amounts and APRs without requiring any collateral. To check your chances of getting approved for a personal loan, along with what rates you might qualify for, use WalletHub’s free pre-qualification tool.
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