When experiencing difficulties to pay off all your debts, one option is to look into consolidating debts. Debt Consolidation is having multiple debts combined into one, making it more manageable for budgeting.
Being approved for a debt consolidation loan is a great start to improving your finances. However, being declined is a different story. But not to fear… there are a few steps you can take.
Top Reasons Why People Get Declined
There are a couple of reasons why your application for debt consolidation may have been declined. Financial institutions will always check for validity and proper financial rationale as to why they’ll lend their money.
Lack of Security or Absence of Collateral
One reason is that you’ve no security to offer for debt consolidation. Financial institutions will ask if you have assets to offer as security or collateral. This helps to ensure the repayment of the loan.
Another reason is that you may also have a problem with your credit history. Your ability to borrow or apply for a loan also depends on your credit report.
If you have an insufficient credit history, this may also be a problem. Lenders will also check your payment history. Good credit history can translate to your credit report, thus increasing your chance of approval.
Steady Income Stream
Your income may also be one of the factors that could determine whether you will be approved for debt consolidation. Financial institutions and lenders will check if your salary is sufficient to cover all your financial obligations, including your consolidated debt.
Having a high or stable income means that you have the ability to pay, thus giving you higher chances for approval. Having too much debt could also be a factor since you’ll be deemed risky or lacks financial credibility.
What to Do if You’re Declined
What do you do if you get declined for debt consolidation? There are a couple of steps that you can take.
Add the debt to your mortgage
Adding the debt to your mortgage is one of the most popular ways in which you can consolidate your debt. This is, of course, if you own your home and have enough equity in it.
Home equity is the amount or difference between the worth of your home and what you still owe from your mortgage. For example, your home is worth $300K and you only owed $200K. You’ll have $100K equity left. You can make use of the $100K equity as payment on some of your debt, by consolidating them into your mortgage and that would be based on a percentage of the loanable amount of the property.
Have a co-signer or a guarantor
Lenders will always check if you can qualify for a debt consolidation or any loan for that matter. If you can’t qualify for a loan by yourself, one option is looking for a qualified co-signer or a guarantor. A co-signer or guarantor is responsible for the repayment of the loan if you’re unable to do so.
Live within your budget
One of the reasons why people need to apply for a debt consolidation loan is because they find themselves so deep in debt that they’re unable to pay.
You can begin turning things around by planning your spending to avoid incurring even more debt. If you learn how to plan accordingly, you’ll be able to live within your budget and avoid debt entirely.
Managing your finances by planning ahead
This last tip is easier said than done, but it’s worth mentioning. One way of reducing your debt is by planning ahead.
Managing your finances by planning and budgeting will allow you to stay away from debt and stay afloat. Careful planning and budgeting also help you get out of debt and pave the way for you to start building your wealth. Knowing where to invest your money and living within your budget is a great start.
Seek Professional Help
Want to explore all of your options when it comes to managing your finances? Let an experienced professional guide you as you embark on this important journey.
We at Daisy Raouph can help make sound financial decisions. With more than 30 years of experience in the financial industry and a team of highly qualified, reliable and professional mortgage brokers and financial security advisors, we’re more than willing to help you in dealing with and evaluating your options, for all your financial needs.
Book a call today and talk to one of our advisors who can walk you through the debt consolidation process.