A debt consolidation loan is where one of the banks, credit unions or private finance lenders provide an alternative source to pay off your outstanding debts and “consolidate” them (bring them all together) into one big loan. This holds several advantages.
Advantages of a Debt Consolidation Loan
- There is only one payment to worry about
- Consolidation is used to deal with high interest loans. By consolidating all the loans, you turn it into a low interest one.
- Your debts can be paid off sooner.
- This type of loan will not reduce your credit score.
- If your credit score is bad, consolidation loan can help in rebuilding it.
What are the disadvantages of a Debt Consolidation Loan
- Your credit score should be high for you to qualify.
- The debt service ratio has to be within the prescribed limit otherwise it will be difficult to qualify.
- You may have to provide security like a property asset as collateral.
- The core issues which created your debt problems may not be addressed.
- A co-signor might be required.
How can I qualify for a Debt Consolidation Loan?
The banks looks at the credit score, income sources and debt service ratio before they approve a loan. The credit score depends on not having too many late payments and no big negative notes in your credit report. The income has to be high enough to qualify for a loan whose payment does not take your debt service ratio higher than 42%. If you don’t quite meet all of these requirements on your own, a good co-signor who meets all the above requirements will suffice.
If I do not qualify for a consolidation loan, then what are my options?
If your credit score is bad or your debt service ratio is high or cannot offer security, then a consolidation loan might not be within your grasp. In this scenario, you may want to look at other options. If you don’t manage to qualify for a debt consolidation loan, then the next step is a little more complex. But you can still qualify for a consolidation loan through the 4 Pillars debt consolidation program.
If you need expert and unbiased advice, contact us as soon as possible on 780-665-3767, so that you can find the right solution before it’s too late. The first meeting is completely free and confidential. Rest assured that, however complex is your situation, we will have a solution for you.
