The average credit card interest rate is 21.21%. If you have debts with high-interest rates, you know just how hard it can be to pay them off. Month after month you make the minimum required payment but your overall balance continues to rise.
This is why you need debt consolidation. With debt consolidation, you take out a loan to pay off your outstanding high-interest rate debts. Then, you only have to worry about your new debt consolidation loan, which comes with a much lower and manageable interest rate.
Was your application for a debt consolidation loan just rejected? Keep reading to discover reasons why your loan may have been denied.
1. Low Credit Score
The main reason you may be denied for consolidation loans is because of a low credit score. A credit score shows the lender how you’ve handled debt in the past and how much of a financial risk you are.
A credit score of 579 or lower is considered a poor score. Your odds of approval with a score like this are extremely low.
To raise your score, try the following:
- Make all your payments on time
- Open up a secured credit card
- Don’t close old accounts
- Have a mix of different types of credit
2. Not Enough Income
When you’re consolidating debt, you want to prove to the lender that you can repay the loan you are taking out. This means that you need to show you have adequate income to cover all your basic expenses and this new loan.
To prove your income, provide the lender with recent pay stubs in addition to any other forms of income you receive. This could include things like child support or side-hustle income.
If you don’t make enough on your own to qualify, you can include someone else on the loan as a co-signer.
3. Too Much Debt
You can use personal loans for debt consolidation to help pay off credit cards, medical bills, private student loans, and more. But even though all these debts are accepted, your overall debt amount could result in your rejection.
Lenders prefer to see a debt-to-income ratio below 40%. You can figure out your ratio by adding up all your monthly debt obligations and dividing that number by your total monthly income.
For example, if monthly debt obligations are $2,000 and your monthly income is $5,000, then your DTI is 40%.
4. Mistakes or Missing Info When Applying
If none of the above issues apply to you and you were still denied for a debt consolidation loan, review your application form.
It’s very easy to make a mistake on the application that could lead to your rejection. For example, for your monthly income you could have written $430 instead of $4,300. Or you could have accidentally misspelled your name which meant the lender couldn’t find your actual credit score.
Also, make sure you provided all the requested information and documents.
Get Approved for Your Debt Consolidation Loan
Now that you know why you may have been rejected for your debt consolidation loan, you can address the problem and apply for one again. Or you can search for a more lenient debt consolidation lender. While this may mean you get a higher interest rate, you may be approved on the first application.
Once you’ve gotten your financial future on track, what are you going to do with all your extra income? Browse the Technology and Lifestyle sections of this site to discover ways to use that money wisely.