Understanding debt consolidation loans

[Shannon3671]

Okay, perhaps someone can help me. I have tried getting approved for a debt consolidation loan and have been rejected. The reasons, your balances revolving accounts is too high and debt to income ratio is too high. Am I totally missing the point here or what? Of course those things are high, hence why I want to consolidate. I am looking to close some cards out and consolidating everything would not only allow me to pay off everything, but it would also lower my payments by $300-$400 a month. Hence, both the reasons as to why they want to reject me would be eliminated. Even the most recent late payment is 4 years old and occurred at a time when I was unemployed. Fico is about 650, not great, but not hideous either. Do banks not consider the fact that the same reasons they are declining you are the things you are trying to fix or are they just generic reasons so they have a way to turn you down?

[Anonymous]

I've also been researching debt consolidation loans as well. This is where I'm at with what I've read/found:

• Rejection/Acception isn't purely score based, it's also driven by ability to repay. That decision is driven by economics/education attainment/job opportunities/etc.
• That being said, if the loan you take out with your bank is unsecured, the bank will be a lot more stricter with it's requirements. 650 FICO score may just not be enough. I would suggest taking out a report on your FICO scores and see how you can immediately affect your scores positively in order to reach a score that a bank would be more than willing to accept. I would also research which banks in your area are lighter on the credit requirements.
• If the bank isn't going to somehow profit from the unsecured lending(besides the fees), they simply won't consider the loan. Consider talking to a loan officer about a secured personal loan. With some cash collateral, the risk to them goes down enough to consider the decision more acceptable.

Now, this is all from cursory searching, Googling, and forum reading, so YMMV. Please do not treat this as consutative advice. I am not a financial services professional, just someone who wishes to be debt free like you do.

Good luck.

[Appleman]

It seems that if you need the money it is not to be found and if you don't need the money everyone wants to lend it to you.

I certainly understand the thought process that 'I'm making the payments just fine now, I will be in even better shape once I get a consolidation loan'. Viewed from the perspective of the lender / underwriter they may not see your current credit portfolio as a good risk currently.

I always recommend that you start using a budget, the advantages here are you will not create new debt and your relationship with money/credit will improve.

Start to look at where you can make the biggest change now with your current debt:

Continue to make all payments early or on time.

Figure out your current utilization percentages for your credit cards. Lenders see any credit card carrying a balance of more than 90% of the credit line as maxxed out. If any fall into this category, concentrate on bringing these balances down.

Look into a program such as undebt.it This program is free and gives you information such as DTI, Credit Utilization and how to paydown debt with the Snowball ot Avalnche method.

Unfortunately, short of a big bonus or lottery winning, it will take some time. Luckily, there are plenty of personal loan sites that allow you to see if you qualify with a SP. 

At least you have a plan, it may take a little time but I bet you will get approved in the future.

[trnl2016]

I felt the same way -- getting the same rejections for the very things you're trying to resolve (high debt). I tried several of the online lending companies and ended up grabbing a decent rate with Upstart. I recommend trying the different loan companies that do soft pulls (sorry, don't know all the names off the top of my head) and check every month. Keep your head up... as long as you keep climbing while you're looking, you'll get approved at some point. Best of luck!

[Shannon3671]

Thank you so much to everyone that responded. I talked in length today to the loan officer at the credit union I had just joined and she gave me all the information I could possibly ask for with regards to what they look for and what to do. We agreed that the way the FICO scores are done is BS (we discussed the no win situation with them I'd been in lately to where my score was low saying I had too much credit, then when I closed a card they dropped it again and said I didn't have enough...then in another instance they dinged me 8 points because my retail trade amounts had gone down, then dinged me again when I increased them). She did give some valuable information though that they don't like to see unsecured debt at over 20% of someone's annual income and I'm sitting at 30%. I'm mostly going to be stuck sucking it up right now until I can drop it. I know I will take a hit in my scores for closing some cards out, but it immediately took away the ability to use them for items I don't need instead of just paying them off. I bit the bullet with Discover too since that is my dream card and they hate me by going the secured route with them so I could get my foot in the door. Essentially, I'd like to get everything squared away and just have 1 good Visa, 1 good Mastercard (haven't decided whether to keep the Capital One or Barclay...thinking Barclay because even though they don't give me CLIs as often as I think I deserve them...of course, they were nice enough to lower my interest rate which Cap One refused to do), my American Express, my Discover and a couple of store cards (my Target, Hot Topic, Victoria Secret and maybe the Phillips 66, but I hate Synchrony Bank...lol). Again, I appreciate all of the advice and hope you all have a wonderful weekend.