Was your debt consolidation loan denied? Try these 3 alternatives instead
Credit card debt can get expensive quickly, especially in today's high-rate environment. With the average credit card rate now approaching 23%, carrying a balance from one month to the next could mean paying more in interest than you bargained for. And, if your balance is high enough, those compounding interest charges can make it feel nearly impossible to get out of credit card debt.
Luckily, there are certain types of financial tools, like debt consolidation loans, that can help. With a debt consolidation loan, the goal is to pay off your high-rate credit card debt with a new loan, ideally with a lower interest rate than your credit cards. This streamlines your payments and cuts down on the total amount of interest you owe.
The only problem is that getting approved for a debt consolidation loan generally requires you to have good credit and a strong borrower profile. And, if you apply and are denied for a debt consolidation loan, it can feel like a major setback. Being turned down doesn't mean you're out of options, though.
Find out what your top debt relief options are online now.
3 debt consolidation loan alternatives to try instead
If your debt consolidation loan application was denied, these three approaches could help you pay off your debts:
A debt consolidation program through a debt relief company
One option to consider if your traditional debt consolidation loan is denied is a debt consolidation program offered by a reputable debt relief company. These programs function similarly to traditional debt consolidation loans — but there are some key differences.
In this scenario, the debt relief company acts as an intermediary to help you obtain a debt consolidation loan, typically through a partner lender. And, the loans offered as part of these programs generally come with lower interest rates than credit cards, which can lead to significant savings on interest charges.
This approach can be beneficial if you're struggling to qualify for a traditional debt consolidation loan on your own, as the established relationships debt relief companies have with their partner lenders could improve your chances of approval. These companies often provide support and guidance throughout the repayment process, too.
However, it's important to carefully consider the terms of the debt consolidation loan and any fees associated with the program beforehand. While the interest rate may be lower than your credit cards, you need to ensure that the overall cost of the program, including any fees charged by the debt relief company, won't outweigh the potential savings.
Learn more about your options for getting rid of high-rate credit card debt today.
A home equity loan or HELOC
If you're a homeowner with equity in your property, you might consider using the equity you've built in your home to consolidate your debts with a home equity loan or a home equity line of credit (HELOC). A home equity loan provides a lump sum that you can use to pay off your existing debts, while a HELOC gives you a revolving credit line that you can draw from as needed.
These options may be easier to qualify for because they're secured by your home, meaning that there's less risk to the lender. And, these borrowing alternatives often come with lower interest rates than credit cards or personal loans. Plus, you may be able to access larger limits with a home equity loan or HELOC, so this can be a smart option to consider if you're dealing with high amounts of card debt.
It's important to remember, though, that using your home as collateral on a loan is a serious decision. You're putting your home at risk if you can't make payments. There may also be closing costs and fees to consider.
A credit card debt forgiveness program
If you're struggling with significant credit card debt and the other options seem out of reach, you might consider credit card debt forgiveness, also known as debt settlement, as an alternative. This approach involves working with a debt relief company to negotiate with your creditors to pay less than the full amount (typically up to 50%) of what you owe. You pay the agreed-upon amount, and the creditor considers the debt satisfied.
While debt settlement can significantly reduce your overall debt burden, it can also damage your credit score. That's because you'll stop paying your creditors and instead make payments to the debt relief company, which is held in a dedicated account. Once enough funds accumulate, the money is used to negotiate settlements. This process can take two to four years on average, during which time your credit score may suffer. Any forgiven debt may also be considered taxable income by the IRS, potentially leading to a larger tax bill.
The bottom line
While being denied a debt consolidation loan can be discouraging, it's important to remember that you have other options. Whether you choose to work with a debt relief company, leverage your home equity or explore credit card debt forgiveness programs, the key is to take action quickly. And remember, getting out of debt is a journey that requires patience and persistence. Stay focused on your goal, and don't be afraid to ask for help along the way.