When people go through financial distress they consider debt consolidation as a debt management option. They regard debt consolidation loans as an effective way to solve their existing debt issues. They opt for debt consolidation with an objective to effectively lower the interest rates and combine multiple payments into one solid monthly payment that is manageable under the circumstances. For some people, debt consolidation is surely the best way out of debts.
However, securing a debt consolidation loan may not be such an easy proposition. Often debt consolidation loan applications are declined. People usually do not have the slightest clue why their application for debt consolidation loans has been declined.
Here are some of the main reasons why debt consolidation loans are not allotted to certain people.
No Security Offered for Debt Consolidation Loan
Financial institutions are often looking for a collateral or security from you when you are applying for debt consolidation loan, especially, in case of individuals who are struggling to manage their existing payments.
Financial institutions would like to make sure that they would be getting their money back from you, no matter what the scenario. For them, your asset is treated as collateral and it is your responsibility to convince them of your ability and willingness to pay.
So, if you do not have any asset to offer as collateral then it would be pretty challenging to secure a debt consolidation loan. Some sort of security is necessary for getting debt consolidated loans. Some individuals often use credit cards for paying off all other debts at a 20 percent interest.
Others would be applying for unsecured loans at 30 percent from any financial company. These techniques would certainly not work if you are thinking in terms of reducing your debt as a bulk of debt payment would be going directly to the interest and hardly anything would go toward the principal amount.
Debt Payment Issues: Issues Relating to Credit Score and Credit Report
While considering debt consolidation as a debt relief option, you would come across several issues. There are numerous credit score and credit card problems that could prevent individuals from getting their approval for debt consolidation loans. Debt in collections or late debt payments often damages people’s credit scores. High balance owing could further make this issue more complicated. Credit score and credit report involve numerous variables so it is best to go through meticulously an explanatory guide regarding ways of calculating the credit score.
Not Adequate Income for Debt Consolidation Eligibility
Generally, a debt loan payment would be costing more than the minimum monthly payments on credit cards. So by the time, one recognizes and realizes the fact that they could be benefitted from debt consolidation, they would be in a position to make only the minimum monthly payments on their existing credit cards.
You have to remember that the minimum monthly payments associated with credit cards could take several decades for paying off any credit card balance. It would be possible provided also if you have stopped using your credit card once you have started making the payments.
Debt consolidation loans usually cannot be stretched over such a long period. They could be stretched over a relatively longer time framework provided these loans have been secured by your house. Consolidation loans are supposed to be amortized within a time span extending over maximum three to five years. So if your present income is not adequate to tackle this sort of payment, your loan request could be declined.
Not a Long Credit History
You must have a substantial credit history to justify eligibility for debt consolidation loans. Your credit history demonstrates the way you have been using credit in the USA. Often people applying for debt consolidation have not been handling credit using their names for a significantly long period.
You must realize that it would be taking a considerable amount of time for building a strong credit report. So, a short credit history may not prove to be fruitful and would be working against you. Moreover, if you have credit and do not use it, again that works against you. You must use your credit card responsibly; instead of keeping it safely tucked away in your locker.
The above-mentioned reasons should be kept in mind before you apply for debt consolidation loans. Try to eliminate all factors that could lead to declining of your loan request before putting in the loan application. Think positive and plan carefully. You are sure to meet with success.