Debt is a great financial tool that can help you out in times of dire need. However, faulty financial planning can leave you with multiple debts, resulting in multiple monthly payments and multiple interest rates. Moreover, missing any of the payments can lead to heavy penalties.
One way out is considering a debt consolidation loan. Whether you seek a consolidation loan to pay off multiple debts or have multiple credit card dues, a debt consolidation loan can help you out in such a situation. However, you must know the essential steps involved.
We’ll go ahead and cover the steps you can take to get your debt consolidation loan approved in Canada. Meanwhile, you can visit this page if you want to know about the best way to consolidate your debt.
Tips to Get Your Debt Consolidation Loan Approved in Canada
A debt consolidation loan involves combining various dues and debts into one larger loan. It facilitates the borrower to make one single payment at the end of the month instead of hustling with and managing multiple payments for various high-interest debts.
Nonetheless, if you also find it challenging to cope with various high-interest debts and their subsequent monthly payments, you can also consider applying for a debt consolidation loan. While doing so, make sure to keep the following in mind to enhance the chances of acceptance of your debt consolidation loan.
1. Don’t have a debt-to-income ratio that exceeds 40 percent
If you’re looking for a loan, it’s crucial to have a debt-to-income ratio that doesn’t exceed 40 percent. A high debt-to-income ratio can cripple your chances of getting approved for the loan and will impact your ability to repay the loan along with interest payments.
Instead of focusing on the total amount of debt you carry, take a look at your monthly expenses. If you don’t have enough money coming in each month, it is time to consider taking on more hours at work or changing jobs if possible. You might also consider saving more money or making other changes to increase your income.
2. Have a regular source of income and/or savings
While a bad credit score can certainly impact your ability to get a loan, it’s not the only factor. To protect yourself from interest rates that are too high for your situation, you need to ensure that you have a reliable, steady source of income and/or savings. A personal line of credit will be easier to secure if you’re able to demonstrate this.
If you don’t have a steady income or savings, consider using credit cards with low-interest rates or taking out a secured personal loan at a bank.
3. Be willing to pay off your debt early
One of the best ways to ensure that your loan application gets approved is to pay off your debt before applying. Doing this lets you establish a good credit history and shows lenders that you’re serious about getting out of debt.
The more debts you have, the harder it will be to get approved for a loan, so make sure you’re prepared to put in the extra effort.
4. Be able to afford the monthly payments
The first key to getting your debt consolidation loan approved is to be able to afford the monthly payments. It might seem impossible to make these payments regularly if you’re struggling with finances. However, there are several ways to ensure that you’ll be able to pay off your debt and have enough money left over for other essential things in your life.
- One way would be to make budgeting a priority. When budgeting, you should consider every expense to know exactly where every dollar is going.
- Another step in getting your debt consolidation loan approved would be scaling back on unnecessary expenses and focusing more heavily on the ones that give you value.
5. Have a good credit score
Having a good credit score can make your path to obtaining a loan much easier. If you’re pre-approved for a loan, you’ll also be able to get the funds that you need more quickly.
To start, look at your credit report and improve any weak spots. You may want to consider taking out a secured card so that you can build up your credit score with responsible use of the card.
Additionally, having an excellent credit score will help you negotiate a lower interest rate with your lender. If a lender looks at your credit history, they’ll see that you’re financially stable and won’t be prone to defaulting on the loan. They’ll want to offer you their best rates to keep their risk low.
6. Be able to provide proof of employment and income
One of the most important things to remember when applying for a debt consolidation loan is providing proof of employment and income. If you don’t already have a stable income, consider looking into a part-time job while you’re waiting for your application to be processed.
Proof of employment and income demonstrate financial stability and let the lenders know that you are capable of paying the monthly payment against the amount you are borrowing.
7. Provide tax returns for the previous year
Just because you get a debt consolidation loan doesn’t mean that you’re out of the woods. You’ll still have to pay your taxes. That is where submitting tax returns from the previous year comes into play.
By providing proof that you’ve paid your taxes, you’re showing lenders that you’re able to keep up with your bills and make good on your debt.
Endnote
By now, you may have realized that a debt consolidation loan can be of great use when you want to get rid of various monthly payments against multiple debts with higher interest rates.
However, if you are looking for a debt consolidation loan, the chances are that your finances are not in great shape at the moment.
Nonetheless, you can still manage to get control of your expenses on debt repayments by applying for a debt consolidation loan with the earlier mentioned tips in mind.