Can I Get Turned Down For Debt Consolidation Loans Because I Have Too Much Debt?

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Question: Can you tell me how you’re supposed to get a debt consolidation loan to pay off debt more quickly (and with way less of a headache) when nobody will approve you because of your debt-to-earning ratio? Even though I have an excellent payment history — with the exception of one medical bill I just found out I owed on my credit report.

Anyway, do you know of any financial institutions willing to offer these loans? I’m even willing to just have direct deposits withdrawn every month so they’d never have to worry about payments. I look forward to hearing from you.

— Sylvia in Texas

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A reader wants to get rid of her debt but she doesn’t know how. You hear a lot of noise these days about debt consolidation loans. I even heard a radio commercial the other day that promised to wipe out all your debts with “one simple and easy” loan. It was a “secret the credit card companies don’t want you to know.” Trust me, I’ve been in this business for more than two decades. There are no secrets.

Debt consolidation loans can be great in certain circumstances, but if you have too much debt, you might not be able to get one at a beneficial interest rate. Thankfully, there are other options, and they may even work out to be better.

Shedding pounds and debt are a lot alike. A personalized plan works best. For dieting, that might mean consulting your doctor or even a nutritionist.

For debt, it’s even easier: You can call an expert. can introduce you to one who might be able to help you — and that might include a debt consolidation loan, but it might not.

It seems like a weird thing to say, but it’s true: If you have too much debt, you might not be able to get a debt consolidation loan. Thankfully, you have other options, and they may even be better ones.

First, let’s explain the Catch-22. A debt consolidation loan is really just a personal loan with a specific mission. You’re going to a bank or credit union to get a loan that will pay off many debts. So instead of paying, say, three credit card companies a very high interest rate, you’re paying a lower interest rate to just one lender.

It’s a time-honored way to save money while also avoiding the embarrassment (and penalties) of forgetting to make a payment on one of your many bills. Then again, you’re still dealing with banks and credit unions, and they both operate under strict rules. If you have bad credit — and many people who owe huge debts do — then you can be turned down for a debt consolidation loan.

Why? Because your bank or credit union can’t be sure you’ll ever have enough money to pay them back. Many times, even if you get a debt consolidation loan with bad credit, the interest rate is so high, it cuts deeply into what you were going to save in the first place. I’ll define “bad credit” here as a FICO score under 500.

So what are the options, Sylvia? First, I strongly recommend credit counseling. Essentially, you’re consulting another expert, but this one will drill down on your financial situation in detail. (I can only scratch the surface here.) can introduce you to a certified counselor at a nonprofit credit counseling agency for a free debt analysis.

From there, you might be eligible for a debt management program. This is what’s called an “assisted debt repayment plan.” Why? Because if your debt is caused by credit cards, your credit card issuers actually help you. They agree to reduce or eliminate interest charges, stop penalties and late fees, and delay collections.

Taken together, these benefits can reduce your monthly payment by up to 30 to 50 percent. Bottom line, Sylvia: Don’t fixate on debt consolidation loans. Call a credit counselor to learn about your options.

Have a debt question?

Email your question to and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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Originally published at on June 6, 2018. helps people with credit card debt, tax debt, student loans debt, credit report errors, ID theft issues, bankruptcy & more!

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