Who qualifies for debt consolidation loans? Combining multiple obligations into a single lower interest account with longer repayment terms can give consumers extra breathing room.

However, consumers who owe large sums of money do not always meet every single eligibility criteria. Fortunately, lenders no longer work with black and white rules. If you fall short in one area, you may still gain an approval if you rank well on other factors.

  • Universal eligibility criteria such as scores, employment, and service ratios
  • Unique requirements for secured and unsecured accounts

Universal Debt Consolidation Loan Eligibility Criteria

Debt consolidation loans have universal eligibility criteria, which may pertain to both secured and unsecured accounts (which may include other requirements as outlined later in this article).

Most brick and mortar and online lenders will consider your credit history and score, employment and income, and your monthly service ratios when underwriting your application.

Do you qualify for debt relief? A settlement program may offer the best answer to your debt problems if you owe more than $10,000 in unsecured obligations (credit cards, unpaid medical bills, or personal loans). There is no minimum credit score requirement as with a loan.

Credit History and Scores

Your credit history and the risk score is the most important qualifying criteria when applying for debt consolidation loan. People with bad ratings may have to jump through more hoops while those with better scores have lesser documentation needs.

Bad Credit Rating

Having a bad credit rating or score does not automatically disqualify you. You have to consider the reasons why your score is poor and weight compensating factors.

Many people have poor scores simply because they have large outstanding balances, their history is too short, or their file is thin. Others may have low scores because their report shows historical delinquencies or they are currently delinquent on one or more obligations.

As long as you are not currently delinquent, you may qualify. You must balance a bad rating by ranking well on compensating factors such as your employment situation, your service ratio, and any collateral you can pledge.

Good Credit Rating

Borrowers with a good credit rating often qualify for fast approval based solely on their risk score. Many lenders will give an automatic okay for unsecured accounts, without examining compensating factors – if the score is high enough. Applicants with middling ratings may pay higher interest rates or must present information that is more comprehensive.

Employment Situation

Your employment situation speaks to your capability to repay a debt consolidation loan. Lenders may want to measure the reliability of your future income stream, as you need income to repay the note.


Unemployed applicants may have a temporary stream of government benefits that typically run at a fraction of normal income. Both factors reflect poorly on your ability to make future payments and may lead to a declination unless you have a very high credit rating. A settlement program may be a better option.

Self Employed

Self-employed applicants do not have the luxury of an easily verified income. A lender may request that you submit your last two years of tax returns including IRS Schedule C. You need to show a profit both years.

Small business owners tend to go out of business at a higher rate, so expect the lender to discount your earnings.

W2 Employees

Gainfully employed salaried applicants with a long-term history with one employer have the best credentials. Lenders can reliably project that income will continue over the term of the note. Lenders may require that you submit recent pay stubs or W2 earnings statement to verify income.

Service Ratio

Your Debt to Income (DTI) ratio is the eligibility criteria that trips up the most consolidation loan applications, which then prompts further action. Your DTI is your monthly debt service payments divided by your monthly income.

A high DTI is a sign of trouble. It suggests you may not have enough cash flow to repay the note after meeting your daily living needs. A new borrowing relationship increases the ratio, as you now owe more money each month.

A smart lender may demand that you use the proceeds to retire existing obligations, and then close each account to ensure that you do not run up new balances on credit cards, and other obligations.

Secured and Unsecured Debt Consolidation Requirements

The underwriting requirements, interest rates, and repayment terms may vary based on whether you apply for a secured or unsecured loan to consolidate your debts.

Unsecured options may fit a larger number of borrowers as many do not have sufficient equity in their home or car. However, a secured account may offer better interest rates, repayment terms, and higher chances for an approval for those who do.

Unsecured Loans

Request an unsecured debt consolidation loan here. Non-homeowners, homeowners with insufficient equity, and those still owing money on their car note can request an unsecured personal loan to consolidate their debts. The underwriting process is more streamlined, as the lender does not need to verify the ownership and value of the assets pledged as collateral.

The lender approves or declines your request based upon your promise to repay the principal and interest according to terms. The lender measures the strength of your promise (or signature), solely based on the criteria outlined above:

  • Credit history and scores
  • Employment status
  • DTI ratios

Secured Loans

Secured loans are less risky to lenders because they can repossess the collateral pledged against the account. That is the dark side to using collateral. Make certain you do not risk losing your house, car, or family jewels just to consolidate your debts.

In exchange for putting your home or automobile at risk, the lender may be more likely to approve your request, offer a lower interest rate, and extend the repayment terms – which means lower monthly payments.

Cash Advances

Payday cash advances are secured by a post-dated check or automatic withdrawal tied to a consumer’s payroll. Anyone with a reliable source of income qualifies.

These work well for emergency needs but are not suitable for consumers seeking to lower monthly payments via consolidation. You must repay the obligation within weeks rather than years, or face stiff rollover fees.


Homeowners must have sufficient equity in their residence. The equity in your home is the current market price based on an appraisal ordered by your lender, less the outstanding balances you owe on your primary mortgage, and other notes secured by your residence.

You may qualify to borrow a portion of the remaining equity using a Home Equity Line of Credit (HELOC), or a second mortgage to consolidate debt. An HELOC is a revolving account, which provides flexibility to borrow as needed during the draw period, while a second mortgage is an installment contract with fixed monthly payments beginning day one.

Automobile Owners

Automobile owners can obtain a secured title loan to consolidate their debts. The borrower must have clear title to the car. This means that you have paid the original car note in full, and have not pledged the vehicle as collateral with any other lender. Keep in mind that if you fall behind on payments, the lender can repossess your vehicle.