If you’ve considered the advantages of debt consolidation and believe that this may be the perfect debt relief option for you, it is now time to ask the most important question of all: Will I qualify for debt consolidation?

There is a degree of uncertainty when it comes to knowing whether or not you will be able to take out a debt consolidation loan. While even those with the worst credit will likely qualify for a program of debt settlement, the same individuals can find it hard, if not impossible, to qualify for debt consolidation. Several factors are taken into account when lenders are determining whether you qualify for a debt consolidation loan, and understanding them now can help you know whether or not you should pursue it.

The Right Debts

As with debt settlement, only certain kinds of debt will qualify you for a debt consolidation loan. Typically, you are only able to include consumer debts in a loan that is identified specifically as a debt consolidation loan, but you may be able to include other secured debts if you use a second mortgage or home equity line of credit (HELOC) to pay off your current consumer debts.

Credit Rating

Debt consolidation is easier to get the better your credit is. If your credit score is extremely low, it will be harder to get approved, and you may even need a co-signor to take out the loan. Generally however, as long as you have sufficient income and can pay your minimum monthly payments on your current debts, you should get approved. Should your score be bad enough, a consumer proposal or a bankruptcy may be your only options.

Debt Service Ratio

In evaluating your application for a debt consolidation loan, many lenders will take your debt service ratio into account. Your debt service ratio is the percentage of your monthly gross income required to make all of your minimum debt payments, including payments on unsecured consumer debts and secured debts such as a mortgage. For example, if you gross $4,000 a month and must pay at least $1500 a month to stay current on all your debts, then your debt service ratio is 37.5 percent.

Most finance experts recommend that you do not have a debt service ratio that is greater than 35 percent. If your ratio is already higher than that, lenders are going to be very reluctant to offer you a debt consolidation loan. As a result, you will have to look at another debt solution for which you may qualify such as debt settlement.

Get Started with Debt Relief

Visit the debt relief page and fill out the form for the most helpful and appropriate solution to your particular situation.