Getting declined for a debt consolidation loan can feel like hitting a dead end – but it’s far from the end of the road. In fact, it could be the start of a better, more sustainable path to financial recovery. At Spergel, we’ve helped over a hundred thousand Canadians find tailored debt relief solutions after loan rejections, and we’re here to guide you through your next steps. While being declined for debt consolidation can be disheartening, in many cases, it’s a turning point. A chance to pause, reassess, and take a different, more sustainable approach to managing your debt. With the right support and a clear strategy, you can regain control of your finances and start building the future you deserve. Here’s how.
Why was your debt consolidation loan declined?
Lenders typically assess your creditworthiness based on factors like:
- Credit score
- Debt-to-income ratio
- Employment status
- Credit history (missed payments, defaults, or accounts in collections)
According to FICO, the average credit score in Canada is 760 – but most lenders require a score of at least 650 to qualify for a competitive debt consolidation loan. If your score falls below that, or your income isn’t stable, you may be seen as too high a risk. If you’ve been declined for debt consolidation, you’re certainly not alone. In a 2024 survey by Finder Canada, 8.09% of Canadians who applied for a car or personal loan were denied due to an insufficient credit rating. Other common reasons included high existing debt (6.49%) and not meeting income requirements (5.09%). These figures highlight the challenges many Canadians face when seeking financial relief through traditional loans.
Step 1: Take a deep breath – then get the full picture
Getting declined for debt consolidation can be emotional. But before reacting, request a clear explanation from the lender. They are legally required to tell you why your application was denied.
Ask for:
- A copy of the credit report they used
- Specific reasons for the decision
- Whether you can reapply and under what conditions
“Debt consolidation loans can mask the problem. At Spergel, we focus on solving it”, says Graeme Hamilton, Licensed Insolvency Trustee at Spergel. “We help Canadians reduce their debt – not just reshuffle it – with legally binding solutions that actually stop interest, protect assets, and put them back in control.”
Step 2: Review your credit report for errors
Sometimes, loan rejections come down to inaccuracies. Credit bureaus like Equifax Canada and TransUnion encourage Canadians to review their credit reports regularly, as inaccuracies – such as outdated accounts or incorrect balances – can negatively impact credit scores if left unaddressed.
Look for:
- Incorrect personal information
- Paid-off accounts listed as unpaid
- Duplicate debt entries
You can request a free credit report from Equifax Canada or TransUnion Canada once a year.
Step 3: Explore other debt relief options
Debt consolidation loans are just one of many options. If your application was declined, it may be time to explore more reliable, structured ways to regain control of your finances.
Consider:
Credit counselling
A certified counsellor helps you create a budget and may negotiate lower interest rates with creditors, although there is no reduction in the amount of debt owed.
Consumer proposal
A legal, government-regulated process that lets you settle your debt for less than you owe – without losing your assets. Debts are often reduced by up to 80%, you receive legal protection from your creditors, and you can keep your assets.
“Consumer proposals have become a lifeline for many Canadians, especially as household debt hits record highs,” says Graeme. “They’re a smart alternative for those turned down by traditional lenders.”
In fact, according to the Office of the Superintendent of Bankruptcy, over 78% of all formal insolvency filings in Canada are now consumer proposals.
Debt management plan
Offered through non-profit credit counselling agencies, a debt management plan lets you repay your debt in full over time, often with reduced or zero interest.
Step 4: Speak to a Licensed Insolvency Trustee (LIT)
Only a Licensed Insolvency Trustee – like those at Spergel – can legally administer consumer proposals and bankruptcies in Canada. They’re regulated by the federal government, and consultations are free and confidential.
A LIT can help you:
- Assess your full financial picture
- Compare all debt relief options
- Stop collection calls and wage garnishments
- Rebuild your credit post-debt
“It’s not just about eliminating debt – it’s about getting your life back,” adds Graeme. “We don’t just look at numbers. We look at people’s goals, values, and wellbeing.”
Declined for debt consolidation: FAQs
Here are some of the most common questions we receive about being declined for debt consolidation:
Why am I not eligible for a debt consolidation loan?
You might not be eligible for a debt consolidation loan if your credit score is too low, your income is unstable or insufficient, or your debt-to-income ratio is too high, making you a higher risk to lenders. Other common reasons include a history of missed payments, accounts in collections, or recent credit inquiries. Even small red flags in your credit profile can lead to a rejection – especially if you’re already struggling to stay on top of existing debt.
What is the red flag of debt consolidation?
The biggest red flag of debt consolidation is that it can give a false sense of progress without actually solving the underlying problem. While it may lower your monthly payments by extending your loan term, you could end up paying more in interest over time. Also, if you continue to use credit irresponsibly after consolidating, you risk doubling your debt – now with both old and new balances. It’s a warning sign if consolidation feels like a quick fix rather than part of a long-term financial strategy.
What is the lowest credit score to get a consolidation loan?
The minimum credit score required to qualify for a debt consolidation loan in Canada varies by lender, but generally, a score of 650 or higher is preferred. Some lenders may consider applicants with scores as low as 600, though this often comes with higher interest rates and stricter terms. It’s important to note that while some lenders may offer loans to individuals with lower credit scores, these loans often come with higher interest rates, which can negate the benefits of consolidating debt. Therefore, it’s crucial to assess whether the terms of such a loan will truly aid in your financial situation.
Real stories. Real results.
At Spergel, we’ve helped over 100,000 Canadians take back control of their finances. People like Larissa, a part-time teacher and mother of two who was left overwhelmed by debt after a difficult divorce. With the help of a consumer proposal and guidance from a Spergel Licensed Insolvency Trustee, she found financial stability – and peace of mind for her family’s future.
“I didn’t know where to turn. Spergel helped me take back control, one step at a time,” Larissa shared.
Whether it’s rebuilding after a relationship breakdown, recovering from gambling-related debt, or navigating the aftermath of financial infidelity, our team meets every challenge with empathy, strategy, and a plan tailored to your unique story.
You’re not alone – and you have options
Being declined for a debt consolidation loan can be discouraging – but it’s far from the end of the story. Whether you’re looking to protect your assets, stop creditor calls, or just get a clearer picture of your financial future, Spergel is here to help. Book your free consultation today – talk to a Licensed Insolvency Trustee who truly listens – and start building your plan forward.
