Debt Consolidation Loans To Consolidate Debt. StepChange (2024)

FAQs

Why did I get declined for a debt 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.

Although lenders differ, most require that borrowers have a good credit score, a low debt-to-income ratio and a steady income. Some lenders cater to borrowers with lower credit or allow for co-signers, which can increase your approval odds and or grant you a better interest rate.

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.

Debt consolidation is a good idea if monthly debt payments don't exceed 50% of your monthly gross income, and you have enough cash flow to cover debt payments.

Debt consolidation can negatively impact your credit score. Any debt consolidation method you use will have the creditor or lender pulling your credit score, leading to a hard inquiry on your credit report. This inquiry will decrease your credit score by a few points. However, this credit score decline is temporary.

Reason 1: You have too much debt for your income level

To consolidate your debts, you need to have a high enough monthly income to be able to easily make the monthly payment for your consolidation loan, which is calculated based on the interest rate and how long you plan to take to pay off the loan.

The potential drawbacks of debt consolidation include the temptation to rack up new debt on credit cards that now have a $0 balance and the possibility of hurting your credit score with late payments. Also note that the best personal loans go to consumers with very good or excellent credit, so not everyone can qualify.

People often use unsecured personal loans, which means no collateral is needed, to consolidate credit card debt. They can also use debt consolidation to combine and pay off other types of debt, such as auto loans and other personal loans.

Will my bank give me a debt consolidation loan? ›

Online lenders, credit unions and banks all provide personal loans for debt consolidation.

The entire process typically takes between four and six weeks from the date your application is received. Before completing a consolidation application, carefully consider the following information to determine whether loan consolidation is the best option for you.

If you have excellent credit, high income and are borrowing a relatively small amount of money, it can be easy to get approved for a debt consolidation loan. On the other hand, if you have poor credit, low income and are applying for a large loan, it may be difficult to get approved.

Debt consolidation is almost always the better choice. And while it doesn't change how much you owe, you might save by getting a lower interest rate. However, you usually need at least good credit for this tactic to work.

If your debt consolidation loan was rejected, it means lenders felt uncomfortable with your ability to repay what you borrow. Look at things from a lender's point of view. They want to know what are the chances you will pay the money back?

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. If you have bad credit (300 to 629 credit score) and can take some time to build your credit, you may qualify for a lower-rate loan.

If you can't get a consolidation loan you should focus on reducing your debts as much as possible and building up your credit score. Alternatives to a debt consolidation loan include balance transfer credit cards or a debt management plan, for example.