It’s impossible not to encounter nor acquire debt, most especially if you live in a highly urbanized area. Debt is a certainty when it comes to modern-day living. However, acquiring too much debt becomes detrimental to an individual’s progress.
Whether debt resulted from a bad financial decision, from being poorly advised about a purchase or from simply living beyond means, living in too much debt will feel like drowning in deep waters.
Thankfully, there is a solution that can ease the burden of managing numerous debts, that is, debt consolidation.
Debt consolidation can help you in your financial difficulties
Debt Consolidation is the process of using different forms of financing, in order to pay off debt and other monetary liabilities. When someone is unable to pay their credit cards or the mortgage of their home, that person can apply for a loan that could help consolidate debts into a single liability, then pay them off as one debt.
Debt Consolidation also allows you to funnel in all different debts that you incurred, into one scheduled payment. Having only one source of debt will give you financial flexibility while taking out a debt consolidation loan to pay off all other existing loans will lessen your monitoring and management problems.
Top reasons why people get declined for debt consolidation
Income requirements are not met
Most financial institutions will check your ability to pay before they approve your loan. They’ll check your ability to pay existing financial obligations, such as credit cards, mortgage or any other existing loans versus your proposed loan take out. If your income is sufficient enough to cover all your current financial obligations and the proposed loan that you’re applying for, it’s more likely that your debt consolidation loan or any loan application will be approved.
However, if the bank or any other lending institution determines that your income is not sufficient to cover all existing loans, the loan application for debt consolidation may get declined. Each time you try to apply for a loan, whether through a bank or any other financial institution, the lending institution will always make it a point to check your revenue stream, in order to determine your capacity to pay.
Insufficient credit history in Canada
Your credit history will be one of the determining factors that will dictate your borrowing capacity and capability to pay. The more you borrow, the more you build on your credit history. Banks and other financial institutions will check your credit history, in order to see how long you’ve been borrowing and using credit. They will also check if you’ve been paying and fulfilling your obligation to pay your debt.
Not using your privilege to borrow or take out a loan may result in insufficiency in your credit history, and may also affect your borrowing capability. Insufficient credit history may result in disapproval for certain loans. It’s an excellent way to illustrate that refusing to take on debt is not always a good idea. The very reason that you’re able to incur debt means that financial institutions trust that you can pay off your loan. This also means that banks find you financially credible, which is a huge boost to your credit score.
For instance, if you’re thinking of owning a car but don’t have enough money to buy a car in cash, you’d probably go to a bank and apply for a car loan. The approval of the car loan will likely depend on your credit history. Your credit history will likely dictate if you can borrow and how much you can borrow.
Simply too much debt
Banks and other financial institutions usually have limits as to how much you are allowed to borrow or apply for a loan. The Canadian limit is 40% of your annual gross income. This refers to the percentage that will allow you to apply for a debt consolidation loan.
Once you apply for a bank loan, they will add your proposed amount to your existing debt payments. Existing loans, credit card payments, line credits, mortgage for your car and house are some examples of existing debt. The bank will add all of these sources of debt, to see if all of your obligations, when consolidated, will not exceed 40% of your income.
This system of measurement is called the Total Debt Service Ratio or TDSR. If the new loan amounts to 40% or less of your annual gross income, you have higher chances of getting your loan application approved. However, if the new total is greater than 40%, then your loan application may be declined.
Can bad debt qualify for debt consolidation?
What constitutes bad debt? When you can no longer collect from a client or debtor, your business will incur a bad debt. Bad debt pertains to the amount that was borrowed, and which is no longer collectible.
Any type of debt that doesn’t have collateral can usually be consolidated since debt consolidation applies to unsecured debt. Bad debt is not backed up by any collateral, so you can technically apply for it as part of your debt consolidation loan. Most companies write it off as sunk cost since they are unsalvageable collectibles.
Seek professional advice through Daisy Raouph’s Services
The most practical and convenient way to approach your debts is by seeking professional assistance. Daisy Raouph has been in the industry for more than 30 years. As a Mortgage Broker and Financial Security Advisor, she has a wide array of services that can help you as you evaluate your refinancing options.
Book a call today. Let us help you eliminate your financial woes, so you begin your way towards financial stability.