Debt Consolidation Services
Debt consolidation is a process that is designed to reduce the amount of interest that you pay on your debt.
This is typically accomplished in one of two ways. One way is to transfer your debts to the lowest interest loan that you have. For example, assume you have three credit cards. If one has a 20% interest rate, one has a 15% interest rate and one has a 10% interest rate, you would transfer as much of your debt as possible to the card with the 10% interest rate.
However, this is only possible in some situations and not all lenders will allow for this to happen.
Another common debt consolidation method is to take out a new loan and to use that loan to repay your existing loans. The goal of this process is to get a new loan that has a lower interest rate than your overall interest rate on your current loans. This can save you money on interest costs and make repaying your loan more affordable.
Debt Consolidation Positives
In addition to potentially saving interest charges, there are other benefits to getting a debt consolidation loan.
A debt consolidation loan also makes repaying your debt more convenient, as it reduces your debts to a single payment each month. This means that you will no longer have to struggle to remember to pay various bills of various sizes to various different lenders.
Another benefit to a debt consolidation loan is that it will only have a small impact on your credit rating (if it has one at all) as long as you continue to make all of your payments in full and on time.
Points to Consider
It is important to note that, if you have missed debt payments or made payments late in the past, it may be difficult for you to get a new loan with a favourable interest rate. This can make debt consolidation impractical.
You may be expected to put up some sort of collateral ( for example a second mortgage) in order to secure a loan or a more favourable interest rate.
Another major point that is worth considering is that, while a debt consolidation loan can reduce the amount of interest that you are expected to repay, it does not reduce the principal of your loan. You will still be expected to repay the full amount that you have borrowed to your creditors. If you have been having difficulty keeping up with your debt repayments, then a consolidation loan will likely not solve that problem.
Debt Consolidation Alternatives
With all the information we have provided above, you should now have a better idea of the pros and cons of consolidation loans. For most people, however, there are other options available.
One way to find out more information on the available options is to speak with a Licensed Insolvency Trustee. A trustee can review your financial situation and provide you with details on the available options.
One option that could be available to you is a consumer proposal.
Through a consumer proposal, you make an offer to your creditors to repay your debts in a way that is affordable for you. In most cases, this means repaying a portion of your debts in monthly payments for a specific period of time.
A consumer proposal effectively reduces the amount that you are expected to repay. Once the proposal is complete and you have made all of the agreed-upon payments, your remaining outstanding debt is eliminated. A consumer proposal allows you to repay a portion of what you owe without having to pay the entire amount.
However, a consumer proposal is noted on your credit report. This note remains for three years after the proposal has been completed. Having a proposal noted can make it more difficult for you to get loans in the future, but you can start rebuilding your credit while in a proposal. That said, it is important to consider your current situation. If you have been unable to meet your financial commitments for a period of time, you may have already done some damage to your credit report by missing payments or making payments late.
If you are considering a consumer proposal, you will want to speak with a Licensed Trustee in Bankruptcy. A trustee can review your situation, determine what a fair offer to your creditors will be and be the administrator on your proposal.
If you are living in Canada and thinking about debt consolidation as a way to get some relief on your debt payments then be sure to look into other alternative that can be more beneficial to you. Contact us below and get a 1 hour free consultation to know more about the options that you have before you make that important final decision.