Debt Consolidation Denied? Reasons Behind and What You Can Do Instead!


A debt consolidation loan is a choice that many people think about when their monthly debt obligations, particularly their credit card payments, become too much for them to handle. Consolidation loans have pros and cons, including the possibility that a lender won’t accept your application. 

Suppose you’ve applied for a consolidation loan and been declined. In that case, you might wonder what factors lenders consider in evaluating your application and what you can do to increase your chances of approval. Here are some reasons why your application could have been rejected and how the consolidated credit counseling services of Canada could help you get out of this situation. 

Low Income: It is considered a significant factor;  ask yourself, are your earnings sufficient enough to repay a loan? Or are you barely getting by? A creditor can question why they should give you another loan if your income is insufficient to cover your current loan obligations.  

Income you earn is also essential for another aspect; to calculate the debt to income ratio. DTI  compares the expected loan payment amount to your income. Lenders will doubt your ability to make loan payments if your regular monthly expenses ratio is higher than 36%.

Burdened with too much debt: The more debt you have, the more money you’ll need to borrow.  A bank can easily grant a $2,000 loan than a $20,000 loan. If you are looking for credit, you want to maintain your debt-to-income ratio (DTI) below 36%, which means that about a third of your monthly income goes toward paying off debt. If you save 15% of your income, you could quickly master the art of living debt-free

Credit Score: A credit score indicates your creditworthiness. It provides information to the lender about your credit usage, whether you have been paying your bills on time, and your likelihood of repaying a loan. Debt consolidation loans with poor or bad credit are hard to come by. Lenders prefer to see a credit score of 670. 

Now, what can you do instead?

When you need financial assistance and are denied a debt consolidation loan, it is a sign that your financial situation has to change. Don’t skimp on your spending or debt repayment.

First, fix your credit and then reapply: Everybody wants a second chance, and lenders may be the ones most likely to give you one. Remember, lending institutions make money by lending, not denying it.  They need the math to add up, but you must convince them by resolving your credit issues. Make a budget and stick to it.  Aim at the areas lenders check before making a loan- income, credit score, and amount of debt. 

Speak with a credit counselor: Sometimes, it is impossible to understand why the lender rejected your application. This is why it’s often best to speak with a credit counselor, as they are trained to assess these things.  They can look at your portfolio and point out the red flags. What’s more, they can even help you form a budget. 

Most Nonprofit credit counselling agencies may suggest a Debt Management Plan where you make a single payment to them, and they make payments to your creditors. 


Lenders don’t hand over a loan to anyone. Finding a bank, credit union, or online lender ready to offer reasonable interest rates and terms may be challenging. Instead of worrying, take action. Learn why your application for a debt consolidation loan was rejected and what you can do differently next time. A rejected application usually signifies that potential lenders doubted your ability to return the borrowed money. Consider the situation from the perspective of a lender. Recognize the reasons behind why they rejected your application and how to make them work for you. 

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.