You sized up your finances, did your research, and decided to pursue debt consolidation. You felt good about a lender you hoped was a match. Then, a blow: your application for a loan was rejected.

Now what?

Debt Consolidation

Before we get into how one can be denied debt consolidation, let’s take a look at the financial strategy that (by the way) isn’t for everyone, to begin with.

A consolidation loan combines all your unsecured debts into a new loan with a single monthly payment. For the new loan to make sense, it must have a lower interest rate than the aggregate rate on the existing debt you’re consolidating.

Whether it’s a good idea for you depends on both your personal financial situation and the type of debt consolidation you’re considering. Consolidation works best if you already have a good credit score, high-interest debt, and a repayment plan.

But, can you be denied debt consolidation? Alas, you can. In fact, according to the InCharge Institute of America, of 53 million people who applied for such a loan in 2017, only 20 million got one large enough to erase their debt.

What Happened?

Ask your lender. Possible reasons include a low credit score. Typically, you need a credit rating of at least 670. Anything under that is iffy, and you may want to consider guaranteed debt consolidation loans for bad credit. 

Maybe your income was the problem. Lenders will usually compare the anticipated amount of your payment to your take-home pay. If your debt-to-income ratio for recurring monthly expenses exceeds 36%, lenders may be skeptical that you can afford a new loan.

Perhaps the issue wasyou’re carrying too much debt, which lenders consider a major risk. When your plan was to get a monthly bill that would better allow you to repay your debt, being rejected due to your debt load can be particularly disappointing.

What To Do?

Now that you’ve learned why your application was declined, you can talk to a credit counselor who can help you assess your financial situation, advise you on budgeting, and shore up your credit.  A nonprofit credit counseling agency will assist you for free.

If the issue was excessive debt or insufficient income, create a budget to which you’re able to hew, with details about how your income can be used to help you accomplish your financial goals.

To make significant inroads into getting on track, you’ll likely need to consider slashing expenses and making extra money, perhaps in the form of an online or “gig” job.

Loan Alternatives

Now that you have a plan for managing your budget, you can begin looking at debt relief options that might be available to you.

Those alternatives can include engagement with a debt management company, which calls for you to make a single monthly payment through a nonprofit credit counseling agency which pays your creditors for you. No loan is required.

If you’re a homeowner and owe less than what the property is worth, you may be able to take out a home equity loan to get rid of your debt. The loan can be used to consolidate credit card and other debt and create one monthly payment. Be careful here though, you could lose your home if you default on the loan.

Debt settlement is another possibility. With this strategy, you’ll settle your obligation for less than what you owe. You’ll see a sizeable dip in your credit score, however, so tread carefully.

Then there’s the last resort of bankruptcy, which wipes away your debts but not without a significant blow to your credit rating. You’ll probably also need to hire an attorney to file for you, since the process can be complex. So, can you be denied debt consolidation? You’ve learned that the answer is yes. But as you take steps to lower your debt load, remember that you still have options to improve your financial footing.