Can you get a debt consolidation loan? That’s a common question around here. There’s a technical way to answer that question and a common sense informal one.
Let’s start with the common sense approach. I ask you to take an objective look at your financial situation and ask yourself – would you qualify for a loan? Be honest. I mean if you are really struggling under a big debt load and your income cannot pay your current bills who do you think would loan you money?
It doesn’t matter if you are sure things will improve, a person, bank, or other type of lender will look at your current situation and want to know one thing – can you pay the loan back? If they can objectively say yes, maybe then they will likely charge you a very high interest rate in order to compensate them for taking a big risk with their money.
Banks do not take big risks, in fact, these days outside of credit cards, they don’t take many risks at all. So walking into a bank to try and get a loan to pay off your bills is unlikely unless you have a home or other asset they can take from you to repay the loan if it comes to that. This is called collateral and banks don’t lend money without collateral.
So if you don’t have sufficient collateral for a bank loan is there another place to get a debt consolidation loan?
There are two primary ones:
- Payday loans – These are loans you take with the understanding that the payday lender will be able to take money directly from your future paychecks to repay the loan. The interest rates can be upwards of 300-500% annualized making these loans insanely expensive and not recommended unless you have an extreme emergency and know exactly how and when you will be able to repay the full amount. Even then these loans are very scary.
- Peer to peer loans – these are crowdsourced loans on lending websites like Prosper and LendingClub. Basically you post up your information, credit score, etc. and ask people for a specific amount of money for a specific purpose. Increasingly people are using these sites for debt consolidation however, just like with the banks you need to be a relatively low risk loan for strangers to give you money. That means you need to prove you have a high likelihood of repaying the loan in a timely manner. Credit score, income levels, job security are all things that people will review carefully before giving you money.
And what if neither of these options sound attractive or feasible to you given your financial situation?
Then you may need to look into a non-loan debt consolidation solution like debt settlement or credit counseling. There are honest and reliable companies that can help you with each of these – do your research.