There are debt consolidation loan alternatives that you can opt for in case you fail to get approval on your application. Sometimes, a bad credit score, insufficient funds, and too much debt can keep you from borrowing a loan. That means you cannot use it to consolidate your multiple debts.
But that does not mean you should give up. According to reports, 3 out of 10 consumers with credit card debt believe they cannot pay their balance within the year. Admittedly, getting out of debt will be hard. You need to expect that you will encounter a lot of problems before you can truly be free from debt. Do not give up hope even if it is hard to achieve your goal. Not getting the approval for the debt consolidation loan is just one obstacle that you have to overcome. Shake it off and look for a way to get past this setback.
Fortunately for you, there are other options that you can use to get out of debt. Even if you did not get approval, there are debt consolidation loan alternatives that can help you deal with your debt situation.
Debt consolidation loan alternatives if you got disapproved
A debt consolidation loan is not your only way out of debt. It may seem like the best option but there are alternatives that are equally effective in solving your debt problems. If you are looking for debt consolidation loan alternatives, here are some of the options that you have.
DIY debt relief
You can start by taking care of things on your own. Start by listing all the debts that you owe and ranking them based on priority. There are two ways you can do this. One is to rank the debts that have the lowest balance to the highest. The other option is to rank the credit accounts from the highest interest rate to the lowest. If you think you will need motivation to completely get out of debt, you might want to opt for the first one. But if you want to save money, you should go for the second option.
Once you have ranked your credit obligations, you need to pay the minimum for all the debts – except the one that is highest on your list. You need to pay more than the minimum for this priority debt. All the extra money that you have will be paid towards this debt. This will cause you to pay it off faster.
After paying off the first debt, the second debt on the list will be the priority debt. All the money used on the first debt will now be added to the payments for this new priority debt. When that is paid off, you go next to the third debt – and keep repeating this until the debts are completely paid off.
Balance transfer card
Among the debt consolidation loan alternatives, this is the one that people do not opt for. One survey revealed that almost half of their respondents admitted to never trying a balance transfer credit card to get out of debt. This is unfortunate because using a balance transfer to consolidate debts is actually very effective. Of course, you need to understand what this is all about so you know how to implement it properly.
When you use this option, you will be applying for a new credit card that offers a 0% interest for all transferred debts. This will only be for a limited period. If you want to maximize the benefits of this option, you need to pay as much as you can before the 0% interest rate expires. This means you have to make bigger payments every month. Once the promo period expires, the interest rate will go higher and it will be harder to pay off any existing debts.
Getting the help of a credit counselor is also part of your debt consolidation loan alternatives. This counselor will discuss your debt situation and find out how you can afford to make monthly payments. Part of the service is getting you out of a debt cycle through debt management. They will create a customized debt management plan that will favor your current financial conditions. You need to agree to this plan so the credit counselor can present it to your creditors and lenders for approval. While it is being presented, the credit counselor will also try to negotiate for a lower interest rate or have the fees and charges waived. It is not guaranteed that this will be successful but you can be assured that they will try to lower the charges that you have to pay.
Once they approve, you can send the total monthly payment to the credit counselor. The counselor will distribute the money to your creditors and lenders. This arrangement will make it easier for you to focus on earning the money needed for your debt payments.
It is important to stick to your monthly payments. In case you fail to pay your dues, the debt management plan will be revoked and you will go back to your original debt payments and terms.
Finally, you also have the option to have your debts settled. This involves negotiating with your creditors and lenders so they will allow you to pay a smaller amount than your current balance. Anything that you cannot pay off will be forgiven. This debt reduction should help you save a lot of money on your payments. You need to be able to pay a lump sum amount so they will approve of your request.
Admittedly, this can be a tricky negotiation to do. This is why there are a lot of debt-ridden consumers who have opted to work with a debt expert to help settle their debts. It can be stressful to negotiate this successfully because no creditor or lender will readily agree to reduce your debts. But if you are successful, make sure that you ask for a written confirmation that they agree to the settlement terms. You need to have this before you send payment. Otherwise, they might insist that you pay the whole debt.
How to choose among debt consolidation loan alternatives
All of these debt consolidation loan alternatives are effective but you need to make sure you are choosing the right option. If borrowing a debt consolidation loan is not possible, that is okay. Make your choice based on the following factors.
First of all, you need to find out how much you can afford to pay. If you can afford to pay a huge amount each month, then the DIY debt relief and balance transfer should work well with you. However, if you need a debt reduction, it is easier to accomplish that through debt management and debt settlement.
While you are looking at your monthly budget, you need to check your expenses and figure out how you can lower it so you can put more funds towards your debt payments.
Another thing that you need to consider is your time. If you are very busy with your work or personal life, you might want to work with a professional. This means opting for debt management or debt settlement. But if you have time to negotiate and handle the management of your debts, you can opt to DIY your debt relief options or use a balance transfer card.
Finally, you need to consider your future goals. Make sure that the debt relief option that you will opt for will take you one step closer to your financial targets. If you want to increase your savings, debt settlement should be a good idea. If you want to take care of your credit score, debt management can help you with that.