Should you opt for a debt consolidation program?
Debt consolidation programs are aimed at those people who have a huge pile of overdue credit card and utility bills among others, and are finding it increasingly harder to repay them.
These programs generally combine all your debt into one, which can be beneficial in certain circumstances, and also help you avoid the confusion inherent with multiple debts.
Such programs are offered by non profit credit counselling organizations and mostly include consumer education and awareness, including counselling on your debt situation.
They also offer to help you with debt management plans or help you get access to a debt consolidation loan.
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Here a consolidation loan would mean that your debts are clubbed together and paid off in one large payment by a lender, and you would consequently pay back the lender in monthly installments.
However, a debt management plan would seem the same, but in this case no new loan is created.
Rather, a counselor would help you bundle all debt payments into one manageable whole to be paid by you every month.
A consolidation loan would require a high credit score, without which you would not qualify.
However, a management plan does not have any such requirement and can be chosen by anyone.
What are the Risks and Advantages of a Program to Consolidate Debt?
However, there are risks, advantages and limitations that every debt consolidation program entails.
It is best that you are aware of these when opting for any of them.
Opting for a debt consolidation program can help you keep your credit score up if you expect your rating to go down in the near future due to piling up bills.
It can also mean that the monthly amount you pay for your bills may reduce, leading to less stress.
With a consolidation program, a major benefit is that you will be in safe hands to get back on track to improve financial health as a counselor would be there to constantly help and guide.
It would also mean that no creditors or collectors would trouble or harass you with frequent calls or even pursue legal action.
However, there are many negatives to consolidation programs.
One of them is that you may end up with more debt and bills in your hands compared to before.
This could happen if you are not careful with your credit card bills.
A consolidation program would only take into consideration the credit card bills accrued up to a certain date.
If you continue to use your credit cards, more bills will be generated, meaning you would again have to deal with additional debt.
Also, paying back the debt could take up to five years, which would mean paying the monthly amount for around 60 months, which could pose a risk for some.
Debt settlement is an alternative, however, it must be used only if you don’t see any chance of paying back your debt in full or are able to pay a fixed sum of money every month.
This method reduces your total principal amount and slashes the interest to an extend, but it seriously harms your credit score, meaning taking future loans could be made challenging.
Debt consolidation programs are intended to help you get unsecured debts under control and lower your interest rate.
When you consolidate your debts you can lower your monthly payment, which frees up more cash to spend on debt repayment.
By using a debt management program to consolidate your debts you can get your financial situation under control.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?
