Can I Get a Debt Consolidation Loan Without a Job?

A key to managing debt is keeping an open mind and exploring all possible options. In many cases, a debt consolidation loan can reduce your monthly payments. It may also reduce the total amount of interest you have to pay. 

However, if you don't have a job, it’s often harder to get a debt consolidation loan—but not impossible. There are factors that could help you get a debt consolidation loan without a job.  If you can show some means of repaying the loan, you could still be able to get one. 

If that doesn't work, other debt relief options are still available. 

What Lenders Look for in a Debt Consolidation Loan Application

When you’re applying for a loan, it helps if you can put yourself in the lender's shoes. What would they want to see from someone they're going to lend money to? 

What they're interested in are signs that you're willing and able to repay the loan. To determine that, here are three big things lenders look for:

• A steady and reliable income. Most loan payments come due monthly. Naturally, a lender wants to know if you have a source of income available month after month so you can make those payments. 

• A good debt-to-income (DTI) ratio. It's not just the money coming in that matters. The payments you're already obligated to make matter, too. DTI ratio is the percentage of your income that debt and housing payments use up. In general, a DTI below 36% is what you want to shoot for, though up to 43% could still be acceptable. The stronger your other qualifications, the higher a DTI the lender could allow.

• A consistent credit history. Part of this is your credit score, but the details of your credit report also matter. It's wise to check your credit reports before applying for a loan. That gives you a chance to clear up any errors or outdated information. Lenders prefer to see a fair to good credit score, but some are open to making loans to people with lower scores.

If you don't have a regular job, you might be most worried about the income requirement. However, income can mean sources other than wages. Even without a regular paycheck, you may be able to demonstrate that you have the money necessary to repay a loan. 

Income Sources That Could Help You Qualify for a Debt Consolidation Loan

Income can come from a variety of sources other than a traditional paycheck. What lenders really want to know is whether you can prove you have enough coming in to make the loan payments.

If you don't have a regular job, you could still qualify for a debt consolidation loan by pointing to income from other sources, such as:

• Social Security or disability payments. If you are eligible for regular benefits from the federal government, these are a valid source of income to list on your loan application. 

• Spousal support or child support payments. If you have a court order that entitles you to ongoing payments from an ex-spouse or co-parent, you can count that as income when you apply for a loan.

• Pension or retirement distributions. Income from a pension or other retirement plan is a valid form of income. You may have to show statements that spell out what you're entitled to and how long it will last.

• Rental income. If you own rental property that produces steady income, this can help your loan application. It may help if the income is from a long-term lease rather than short-term vacation rentals. 

• Freelance or gig income. Just because you don't have a full-time employer doesn't mean that you don't have income from a job of some type. However, you may have to show check stubs or bank statements to illustrate that the income is likely to be steady and large enough to support your loan payments.

Lenders are concerned with the amount, regularity, and sustainability of your income. Even if you don't have a conventional job, you could get approved for a loan if you can show steady income from other sources.

If you can't show enough income from any source, an alternative is to get a co-signer for your loan. A co-signer is someone who agrees to repay the loan if you don't. For this to help, you need to find someone with high enough income and credit history to qualify for the loan. 

Secured vs. Unsecured Debt Consolidation Loans

If your income situation is not strong enough for you to get a regular personal loan, you may qualify for a secured loan. Most debt consolidation personal loans are unsecured. An unsecured loan is one that requires no collateral. A secured loan is one for which you put up something of value you own as collateral. The lender has a legal right to claim ownership of the collateral if you don’t make the loan payments. 

Lending is largely about managing risk. Since an unsecured loan has no collateral, lenders have to use stricter lending standards. This means making sure your income, DTI ratio, and credit history indicate that you are very likely to pay off the loan. 

With a secured loan, the lender has your collateral to fall back on if you don't repay the loan. This means they could be less strict about their lending standards. Even so, income, DTI ratio, and credit history are still relevant. Lenders don't really want to be in the business of claiming collateral from people who default on their loans—their businesses run much more smoothly if the loan is repaid as scheduled. 

Home equity loans and home equity lines of credit (HELOCs) are common forms of secured loans. If you own enough equity in your home, you could offer it as collateral for one of these loans. That means you might qualify with slightly weaker credit qualifications. 

To get a secured loan, you're likely to have to get an appraisal to determine the value of the property you offer as collateral. 

There is always a risk you could lose any property offered as loan collateral. If that collateral is your home, this is an especially big risk. Whenever you borrow, focus on more than just qualifying for the loan. Be realistic about your ability to meet the payment obligations for the loan. 

When a Debt Consolidation Loan May Not Be the Right Choice

A debt consolidation loan could be a good way to make your debt payments more manageable. Still, it isn't always the right solution. In these situations, you might be better off considering other solutions to your debt problems:

• When your employment situation, credit history, or other factors mean you can’t qualify for a loan.

• If you can't qualify for a loan with terms good enough to make your payments affordable. For example, paying off debt that has a 20% interest rate with a loan at a 30% interest doesn't make financial sense.

• If your income or other factors mean you don’t qualify for a loan large enough to consolidate a meaningful portion of your debts.

• If you can't figure out a budget plan for making the loan payments. There's no point in getting a consolidation loan if your debt payments are still unaffordable.

What to Do When a Debt Consolidation Loan Isn't an Option

Suppose a debt consolidation loan isn't the solution for your situation. There are other types of debt relief you can consider. These range from programs that make it easier to pay off your debt to ways of reducing the amount you owe.

Hardship payment program

Some lenders offer hardship programs if you're facing a financial hardship that makes it hard to pay your bills, such as job loss or a death in the family. They don't typically advertise them, but your creditors may be willing to work something out if you ask. 

These programs don't reduce the amount you owe, but could give you a temporary break on your payments or reduce your interest rate. They are most likely to be available if your trouble making payments is unavoidable and not ongoing. It's also better to contact your creditor as soon as possible, ideally before you fall behind on payments.

Debt management plan

A debt management plan (DMP) is a program you set up with a credit counselor. It's designed to help you repay your debt in full over a three-to-five year period.

Under a DMP, you make one payment per month to the credit counselor. They then split that payment among your creditors. They may negotiate to have your creditors accept smaller payments, as long as you eventually pay off the full amount you owe. They may also negotiate better payment terms, such as reduced interest rates or fee waivers.

A DMP doesn't reduce the amount you owe. There are also likely to be fees involved. For a DMP to make sense, you need to figure out how to pay the full amount you owe, even with the added expense of DMP fees.

Debt resolution

Debt resolution, or debt settlement, is a type of debt relief that involves negotiating with creditors to accept less than the full amount that you owe. The rest of your debt is forgiven.

You can attempt these negotiations yourself or hire a debt settlement company to do it for you. Debt settlement may have credit and tax consequences. However, it may be the best way to make a fresh start if you simply have more debt than you can pay off.

Bankruptcy

Bankruptcy is a legal solution that could offer a fresh start if you have a lot of unsecured debt. It may involve losing assets, and it remains on your credit report for seven to 10 years. There are two main types, Chapter 7 and Chapter 13. 

Chapter 7 could get rid of most or all of your unsecured debt, but it requires a means test and you may not qualify if you make too much money. Chapter 13 could be an option if you don't qualify for Chapter 7 or you have assets you want to save.

Debt Consolidation Without a Job: Next Steps

If you think debt consolidation could be the right move, but you’re concerned about getting a loan without a job, here are some steps you can take:

• Check your credit score. If your credit score isn't great, check your credit reports for inaccurate or outdated information. Dispute any errors with the credit bureaus.

• Add up all sources of income you have. Include government benefits, gig work, spousal support, and anything else that is steady and can be documented.

• Consider whether you have anything valuable enough to offer as collateral on a secured loan. You would risk losing that property if you don't keep up with the loan payments. 

• Research lenders to see if you can find one likely to consider someone with your qualifications. 

• If it looks as if getting approved might be difficult, think about whether you know anyone with good credit qualifications who might be willing to co-sign a loan for you.

• If a loan doesn't look like the right answer, consider alternatives such as hardship programs, a DMP, debt settlement, or bankruptcy. You can get a free debt assessment from Freedom Debt Relief to find out if you're a good candidate for debt settlement.

Even without a job, you have debt relief options. If you find that a prospective solution won't work, don't give up. What may seem like a dead end simply narrows down the search for the right solution. Keep trying until you find that solution.