Debt Consolidation Loan Rejection: What are your Options?

What If Your Debt Consolidation Loan Was Not Approved?

Loan application paperwork with rejection stampedDebt consolidation loans are a popular choice for relief from credit card problems, but be forewarned that lenders aren’t always willing to accommodate people in need.

A debt consolidation loan combines all your credit card debt into a single bill, and pays it off at a reduced interest rate and lower monthly payment.

More than half the people with high credit card debt (above $6,000), apply for a debt consolidation loan to solve the problem, but the results aren’t all that favorable.

In 2017, 53 million people applied for a loan to consolidate credit card debt and only 20 million got one big enough to eliminate their debt. Another 12 million were offered less of a loan than they applied for and 21 million applicants were rejected completely.

If you were among those denied a loan, don’t give up. There are other solutions to the problem. Learn what your next steps should be and explore alternatives for easing the financial burden of credit card debt.

Consolidate Your Debt

Debt management is your consolidation alternative if you have been denied a loan

Assess Why Your Loan Was Rejected

Debt consolidation loans – also known as personal loans – are rejected for a reason, so ask your lender why you were denied. There are several potential causes for rejection.

Low Credit Score:

This is a standard measuring stick for all lenders. Credit score under 670? You’re questionable. Over 670? You’ve got a chance. If your debt-to-income ratio or your payment history reflects negatively on your credit score, you can look into options for debt consolidation with bad credit.

Low Income:

Lenders typically look at the anticipated amount of your loan payment compared to your income, known as the debt-to-income ratio. If the debt-to-income ratio for recurring monthly expenses is more than 36%, lenders may doubt that you make enough money to afford the monthly payments on the loan you’re applying for.

Too Much Debt:

Lenders are also cautious about making large loans to consolidate debt. Loaning money to someone who already owes a lot and can’t effectively pay it back, is a substantial risk. When the whole point of applying for a consolidation loan is to create a monthly payment which would better allow you to pay your debt back, being rejected for this reason can feel especially frustrating.

No Collateral:

There are two kinds of loans: secured and unsecured. A secured loan requires something of value like a home or car for the bank to “hold” as collateral in case you default on your loan. Banks like collateral – for them it’s like an insurance policy on your loan. If you don’t have anything to offer as collateral, your loan application may be rejected.

Speak with a Credit Counselor to Improve Your Credit Score

Once you’ve determined the reason your loan application was rejected, you can speak with a credit counselor who will help you better understand your current financial situation and how you can improve your credit score.

Your best bet is to find a nonprofit credit counseling agency. They offer advice on budgeting and ways to avoid problems with debt. Best of all, they do it for free.

If your debt consolidation loan was denied because you have too much debt or not enough income, create a realistic budget with a detailed plan for how you’ll use your income to help you meet your goals.

To make the most significant impact on your budget and your debt, you’ll probably need to look at cutting expenses and earning extra income. Your budget can be your guide for finding places to reduce costs. With the internet and the availability of “gig” jobs, generating extra income is easier than ever.

Debt Consolidation Loan Alternatives

Once you have a realistic idea of how to manage your budget, you’re in a better position to look at the debt-relief options that might be open to you, including ones that don’t require getting a loan at all.

Debt Management Plan

Debt management companies work with your creditors to reduce the monthly payment, interest rate, and penalties on your debt, without requiring a loan. Instead, you make a single monthly payment through a nonprofit credit counseling agency and they make payments to your creditors for you.

Home Equity

If you own your home and owe less than what the home is worth, you could qualify for a home equity loan to pay off debt. You can use that to consolidate credit card and other debt, while creating one monthly payment in place of several. Bonus: you’ll likely reduce both the monthly payment and the interest rate this way.

Debt Settlement

You, a lawyer, or a company can negotiate with your lender for a single, lump-sum payment to settle your debt for less than what you owe. Settlement will cause a significant drop in your credit score and leaves a stain on your credit report for seven years. It’s important to consider whether the reduced cost is worth it.


Bankruptcy only should be used only as a last resort. It will severely damage your credit rating and remain on your credit report for seven years. And because there are substantial differences between Chapter 7 and Chapter 13 bankruptcy and a complex set of legal procedures to follow to get the best outcome, you’ll probably need to hire an attorney to handle filing for bankruptcy on your behalf.

As you work to reduce your debt, realize that you do have options, even if you’ve been denied a debt consolidation loan. If you need help determining the best way forward, find a credit counselor from a reputable nonprofit counseling agency.


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(2018, May). Report on the Economic Well-Being of U.S. Households in 2017 | The U.S. Federal Reserve. Retrieved from

Posner, C. (ND). Top 5 Reasons People are Declined for Debt Consolidation Loans. Retrieved from

About the author

Heather Eggers holds a Master of Science from East Tennessee State University’s College of Business and Technology, one of fewer than five percent of business schools worldwide accredited by AASCSB International. Like most millennials, she has a budget, bills, and some student loan debt to manage. She learned early to recognize the value of good financial advice. She also learned how to share, so Heather uses her digital communication and business background to share what she knows and learns as a contributing writer.