Debt consolidation problems

Problems when applying for debt consolidation

Having several personal loans and credit cards at one time often creates financial pressure regardless of your income. Income of $100,000 a year does not help significantly if your credit card debt is $80,000 - $90,000. Your other living expenses must be paid as well. Rent or mortgage, utility bills, school fees, groceries, insurance, medical bills and more. First signs of difficulty appear when you realise that this month you were not able to cover all of your expenses with your current income. The first thing to do is to reach for your credit card and fix that extra bill. Handling your bills in this way will increase your overall debt and create more pressure on your finances.

This is the time when you start thinking about debt consolidation. By consolidating your existing debts into a single personal loan a great reduction in your monthly payments can be achieved. Consolidating a $50,000 debt from several credit cards and personal loans can reduce your monthly payments by more than a $1,000 per month. That's extra $1,000 per month available to your budgeting. It seams like the logical thing to do.

The difficulty is finding a lender offering debt consolidation who is willing to solve your financial problems. When consolidating your debt the newly obtained loan will replace all existing debts. This type of loan is more difficult to obtain as it is unsecured, ie. it does not provide security for the lender.

The lender will look at your credit file history before considering the loan. Most of the lenders make their decision on the loan at this point. If you have paid utility bill defaults on your file, and they are for a small amount of money, you may have a chance of receiving the loan. If those defaults are still unpaid you will not be able to obtain the loan.

When making the decision the lender will look at you repayments history on your existing loans and credit cards, such as late or deferred payments. If you are late with your repayments this will make it more difficult when applying for a loan. Having paid or unpaid finance defaults on your credit file will mean it is almost impossible to obtain a debt consolidation loan.

In summary, a clean credit file with no late payments on your existing loans and credit cards will help you with a debt consolidation loan. The current uncertainty in the financial world has forced many financial institutions to enforce stricter lending rules. If your credit file contains several defaults the only solution for you is a debt agreement.


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