Top 5 Reasons People are Declined for Debt Consolidation Loans By Christi PosnerWhen people begin to experience financial difficulty, they often look at\u00a0debt consolidation loans\u00a0as a way to solve their\u00a0debt problems. They do this in an effort to lower their interest rates and combine all of their payments into one manageable monthly payment. For some people, doing this is a good idea. However, getting a debt consolidation loan isn\u2019t as easy as many people think. Here we outline the top 5 reasons why people are declined for debt consolidation loans.\u00a0 After finding out why, you can also read\u00a0what to do after you\u2019ve been declined for a consolidation loan.1. No Security for Debt Consolidation Loan Financial institutions often ask for security or collateral\u00a0when applying for a debt consolidation loan, especially when someone is having difficulty managing all of their payments. They want to ensure that no matter what, they will get the money back that they have lent out. So what if you don\u2019t have anything to offer as collateral? Many people resort to using a credit card to pay off other debts at 20% interest. Others apply for an unsecured loan from a finance company at 30% or higher. But if you\u2019re trying to reduce debt, odds are these routes won\u2019t get you ahead very quickly since a large portion of your debt payment will go straight to the interest, and barely any to the principle.2. Problems With Credit Report and Credit Score Debt Payment Troubles There are many\u00a0credit report\u00a0and\u00a0credit score\u00a0issues that can prevent people from being approved for debt consolidation loans. Late\u00a0debt payments\u00a0or debts in collections hurt people\u2019s credit scores. High balances owing can compound this problem. With so many variables, it\u2019s best to read through a\u00a0detailed explanation of how your credit score is calculated.3. Not Enough Income to Qualify for a Debt Loan Usually a\u00a0debt loan\u00a0payment costs more each month than paying just the minimum payments on credit cards. By the time someone realizes that they could benefit from a consolidation loan, they may only be able to make the minimum payments on their credit cards and not a penny more. Credit card minimum payments are so low that it can take a number of decades to pay off a credit card balance, and that\u2019s only if you stopped using the card while making the payments. Consolidation loans cannot be paid off over a long period of time unless they are secured by your home (this would be called a second mortgage). Consolidation loans are usually amortized over 3 to 5 years. This means that the payments have to be high enough to pay the loan off in 3 to 5 years. If your income can\u2019t handle that kind of a payment, you could be declined a consolidation loan.4. Not Enough Credit History in Canada Your credit history shows how you use credit in Canada. Many people who apply for debt consolidation loans have not been using credit in their own name for very long. It takes time for a strong credit report score to develop, so not having a long credit history may work against you. Another aspect to this is having credit available that you don\u2019t use. If you have a credit card tucked away for safe keeping, you should know that\u00a0you need to use it responsibly to build a credit history; just having it doesn\u2019t actually show that you know how to use it. If you are joint on a loan, know that some financial institutions only report information about the primary borrower, not any secondary borrowers or co-signers. If you want to see what your credit history looks like, you can request it from\u00a0Equifax\u00a0or\u00a0Trans Union\u00a0for free.5. Too Much Debt Banks and credit unions will usually only allow you to borrow up to 40% of your gross annual income for a\u00a0debt consolidation loan in Canada. This means that if you ask a bank for a loan, on paper they will add your proposed loan to your existing debt payments (these are your payments on your existing loans, credit cards, line of credit or mortgage) to see if together they exceed 40% of your income (they call this measurement your Total Debt Service Ratio or TDSR). If the new loan puts you over 40%, then you will have to consider applying for smaller loan or no loan at all.Solutions that are Available When You're Declined for a Debt Consolidation Loan If you have been declined for a\u00a0debt consolidation loan\u00a0or if you are wondering what someone would do if they are\u00a0trying to overcome financial problems\u00a0and are turned down for a consolidation loan, find some answers in the conclusion of this article, the\u00a0Top 5 Solutions When You Are Declined for a Debt Consolidation Loan.