Before you apply for a debt consolidation loan, you want to ask yourself the most basic question: Do I qualify for a debt consolidation loan? The answer will depend on four factors:

First, what is your income? The lender must assess your ability to repay the loan. If you are not working, or if you have low income, you probably won’t qualify for a debt consolidation loan.

Second, how much do you want to borrow? Obviously it is easier to qualify for a $10,000 loan than for a $100,000 loan. The more you want to borrow, the higher your income will need to be.

Third, do you have any security or collateral for the loan? If you want to borrow $200,000, and you have a house worth $400,000, it will enhance your chances of qualifying for a mortgage debt consolidation loan. If you don’t own a home, or if your home has no equity, you won’t qualify.

Finally, what’s on your credit report? If you have bad credit, it’s unlikely you will qualify.

To find out more, try our free debt consolidation loans calculator to see if you qualify.

A debt consolidation loan is a great way to reduce your costs of borrowing. If you can arrange a line of credit or loan at the bank at a low interest rate, and use that money to repay your high interest credit cards, a debt consolidation loan is a great way to save on the interest you are paying, and help you get out of debt faster.

In most cases the cheapest possible interest rate is on a secured loan, such as a mortgage. The bank or mortgage lender knows that if you don’t pay they can take your house. They are “secured”, so they have less risk, so they are willing to give you a cheaper interest rate.

That’s why many people arrange for a mortgage debt consolidation loan or a home equity debt consolidation loan to repay lower their cost of borrowing.

Beware! By getting a secured loan, you have now put a charge against your house. If you don’t make your loan payments, you will lose your house! A secured loan is a great way to reduce your interest costs, but only get a secured loan if you are absolutely certain that you will be able to make all required payments.

The credit crisis of 2008 has lead to the economic collapse of 2009, and there is no doubt that it is now much more difficult to qualify for a debt consolidation loan than it has been at any time in the last ten years.  There are many reasons for this.

First, as real estate values increased between 2000 and 2007 in the United States and Canada, many people were able to qualify for a home equity debt consolidation loan or a  mortgage debt consolidation loan.  Unfortunately as real estate prices have crashed, your house equity has also fallen, making it very difficult to get a debt consolidation mortgage.

Second, your ability to qualify for a debt consolidation loan is based on your income.  If you have been downsized or laid off, your income is lower, so qualifying for a debt consolidation loan is now more difficult.

So, what can you do?

You may need a co-signer to get a loan.  You may need to settle for a lesser loan than what you would otherwise expect.

If you are a senior with substantial equity remaining in your house, you may qualify for a reverse mortgage.

If those options don’t work, you will have to make a personal budget and keep your expenses as low as possible to repay your debts on your own.

During a recesssion, cutting your expenses is critical to avoid bankruptcy, so get started now.

A reverse mortgage is the opposite of a regular mortgage.  In a regular mortgage you borrow money and make payments to the bank each month.  In a reverse mortgage you borrow the money, and don’t make payments!

Sounds good?  There is a catch: Because you are not making any payments, the interest on your mortgage loan continues to increase.  By the time you sell your house and repay the mortgage, it is possible that the amount owing on the mortgage is equal to the value of the house.  For this reason reverse mortgages are only offered to seniors, on the theory that the time they will be living in their house is less than the time a younger person will stay in their home.

If you have debts, you could use a reverse mortgage for debt consolidation.  You take your high interest debts and repay them with a reverse mortgage.  This eliminates your high interest debt, but it also means that when you sell your house there may be no equity left over for your children.

Another option is to simply get a conventional mortgage for debt consolidation purposes.  You borrow the money, repay your other debts, and then simply make a mortgage payment each month.  By doing that your mortgage goes down each month, so you are not continually eroding the equity in your home.  Mortgage loan debt consolidation is a better alternative than a reverse mortgage if you have a monthly income, and can support the monthly payments.

Either way, before you get a reverse mortgage or a conventional mortgage, calculate the cost of each alternative so you know exactly what you will be paying; there should be no surprises with a mortgage of any kind.

There is no guarantee that you will qualify for a Debt Consolidation Loan. If you own a house with equity, you will probably qualify at your bank for a secured line of credit or second mortgage, or you can refinance your mortgage to consolidate your debts with a Mortgage Debt Consolidation. However, if you don’t own a house, or if your house has no equity, you may not qualify.

If you are rejected for a loan, here are the steps you should take:

1. Ask the bank why you were declined.  It may be that you are close to qualifying, so if you can reduce your debt or increase your income you may be able to re-apply again in six months or a year.
2. If your bank won’t give you a mortgage, consider talking to a mortgage broker.  They have access to many different lenders, so they may be able to get you a mortgage even when the bank says “no”.
3. Consider asking a friend or family member to co-sign for you.

WARNING: If a friend or family member agrees to co-sign for you, they are now fully responsible for your loan.  If you don’t make the payments, the bank can now pursue your co-signer for payment. You should only ask a friend or family member to co-sign on your behalf if you are absolutely certain that you can make all of the payments.  If you are afraid that you may at some point miss a payment, do not get a co-signer.WARNING: Each time you apply for a loan and are rejected, a note appears on your credit report showing that you were rejected.  Your credit score goes down each time you are rejected for a loan. If you are rejected, ask the bank why you were rejected.  If you can take action to qualify in the future (perhaps by increasing your income, or paying off some of your old debts) then wait until you have fixed the problems before applying again.  A series of rejections will make it even harder to borrow in the future.

The easiest type of debt consolidation loan to qualify for is a Secured Debt Consolidation Loan.

As the name implies, a secured loan is a loan secured by an asset.  For example, a car loan is a loan secured by a car.  If you don’t make your loan payments, the lender can repossess your car.

Another common type of secured loan is a mortgage, which of course is a loan secured by the value of your house or other property. Why do lenders like making secured loans?  Simple.  They know they can recover some or all of their money if you don’t pay.

In contrast, an unsecured loan has no security, so if you don’t pay there is no asset, like a car or a house, for the lender to seize.  It is the value of this security that makes it easier for the lender to lend to you, and to offer you a lower interest rate on your loan.

That’s why the interest rate on a house mortgage is lower than the interest rate on a credit card.  Here are some sample interest rates (which are presented for illustrative purposes only, since interest rates can change on a daily basis):

• House mortgage                6%
• Car loan                             8%
• Bad credit car loan            15%
• Bank credit card                18%
• Store credit card                25%
• Finance company loan       33%

What does this list illustrate?  Simply put, the best interest rate on a debt consolidation loan will be on a secured debt consolidation loan, such as a mortgage.
If you have equity in your house, you can borrow against that equity to consolidate your higher interest debts.

Information about Mortgages and Home Equity Loans
Mortgage Debt Consolidation
Home Equity Debt Consolidation
Refinance Debt Consolidation
Reverse Mortgage
Debt Consolidation Home Loan
Debt Consolidation Mortgage Refinance
Mortgage Loan Debt Consolidation
Debt Consolidation Mortgage

If you own a car with no loans against it, you may be able to pledge that car as security for a loan or line of credit with your bank.