- BENEFITS OF DEBT CONSOLIDATION LOANS CANADA
- HOW TO CHOOSE THE RIGHT DEBT CONSOLIDATION LOAN OPTION
Debt Consolidation Canada & Debt Consolidation Loans Canada
Debt consolidation Canada and getting a debt consolidation loan in Canada is a popular alternative to bankruptcy as a way to solve debt problems or obtain a more favourable interest rate. This financial strategy involves combining multiple bills with different interest rates, payments and due dates into a single consolidation loan.
BENEFITS OF DEBT CONSOLIDATION LOANS CANADA
Many people use loan consolidation to pay off multiple unsecured debts for many reasons:
- Simplify finances – Instead of juggling several creditor payments every month, all debts are moved into one loan and only one monthly payment is made.
- Save money – Interest rates are reduced provided you can get approved for a low-interest rate consolidation loan.
- More affordable – If you consolidate at a lower interest rate or have a longer period of time to repay, you can make smaller monthly payments.
- Pay off your liabilities faster – If you can obtain a lower interest rate and keep paying the same monthly amount, more of your payment will be applied to the principal amount and less on interest charges. Paying off the amount owing sooner can help boost your credit score and make you more attractive to future creditors.
If you are struggling to pay off multiple creditors, such as credit cards, payday loans, unsecured lines of credit, and other unsecured loans, you may be looking for a way to consolidate monies owed to lower your monthly payments. However, there are several ways to consolidate the amount owed to creditors and finding the right debt relief solution can be challenging. If you’re overwhelmed and don’t know how to decide, we at Richard Killen & Associates can give a free consultation to help you know what type of solution is the safest and best strategy to help you eliminate your debt.
HOW TO CHOOSE THE RIGHT DEBT CONSOLIDATION LOAN OPTION
These are the basic ways to consolidate debt in Canada:
<h3id=”2a”>Consolidating debts with a loan
The conventional method for consolidating debt is to obtain a loan from a bank, credit union or online lender. Ideally, the amount borrowed should be large enough that it can eliminate all the unsecured debt that you want to consolidate all at one time. The loan is then repaid in monthly installments at an interest rate you negotiate with the lender.
There are two types of consolidation loans – an unsecured loan, which is any type of personal loan that does not require collateral, or a secured loan, such as a Home Equity Loan which allows you to obtain the loan against the portion of your home that you own. Secured loans will often give the lowest interest rates.
Big banks and other A-lenders do not often approve unsecured debt consolidation loans in Canada. You would need to have a very high credit score and a high net worth (which means you have a lot of assets and very little liabilities) in order to qualify. A co-signer with a very high credit score and a high net worth will also get you approved for an unsecured loan.
If you have a low credit score or a damaged credit history, it may be difficult to get approved for bad credit debt consolidation loans in Canada. You may need to look for alternative lenders or private lenders. However, keep in mind that unsecured loans for bad credit often come with high-interest rates which could put you in debt for years longer than necessary. In this case, it might be better to look for other ways to consolidate monies owed to various creditors.
<h3id=”2b”>Repayment with a debt management plan (DMP)
DMP’s are offered by credit counselling agencies. In a DMP, some of your unsecured debts are consolidated into a payment schedule that is payable within 3 years or 5 years max. A credit counsellor will work with your creditors to negotiate for either an interest-free period or an interest rate reduction. You still pay the full principal amount but with lower or zero interest. In some cases, the interest reduction may be enough to help them get out of debt faster and improve their financial issues. One significant disadvantage of a DMP is that it does not include tax debt, payday loans and student loans.
<h3id=”2c”>Consolidating debt by filing a consumer proposal
A consumer proposal is a unique repayment strategy in that it is both a debt consolidation as well as a debt forgiveness program. It provides a way to consolidate monies owed into a single, lower monthly payment and also provides relief by allowing you to pay less than the full amount of what you owe your creditors. The amount owed can be reduced by up to 70% depending on your income and assets you own. In addition, you don’t pay any interest as interest charges are completely stopped when you file a consumer proposal. Moreover, you can include almost all unsecured debts in a consumer proposal. You also get to keep your assets. On top of this, it’s a legal process and you get creditor protection from wage garnishment, collection calls and other legal actions and ensures that all parties involved are legally bound to the terms of the proposal until the end.
TALK TO A LICENSED INSOLVENCY TRUSTEE TO FIND OUT YOUR DEBT CONSOLIDATION OPTIONS
It’s possible to get back on track financially using a consolidation loan, but it can also make your debt problems worse. Don’t be so quick to consolidate without first looking over all the details of the loan, particularly on interest charges and other associated costs especially if you refinance a loan. You might not receive a better interest rate and you may wind up paying more in fees and interest.
You have to keep in mind that the purpose of consolidation is to help you tackle your debt problems and improve your financial situation, not make it worse. If you take on the loan and accrue more debt in the process, it totally defeats the purpose of consolidation.
At Richard Killen & Associates, we see consolidation as an effective strategy for eliminating high-interest payments such as credit card bills. It can work if the amount of money you owe isn’t excessive, you have a fairly good credit score and you can obtain a loan with a lower interest rate that can significantly reduce your monthly payment.
If you can’t get a consolidation loan or you’ve been denied one, contact us right away to find out what other options you have to consolidate and eliminate debt. A free consultation will help us evaluate your unique financial situation and help us determine whether an interest-free debt management plan is enough to help you get back on track or if you need to file a consumer proposal, particularly if you cannot afford to repay monies owed in full.
Debt consolidation in Canada is very popular, however, if your not sure if you qualify for a debt consolidation loan in Canada or wondering if that is the best strategy, contact us for a free no-obligation consultation to explore all your options.