The level of debt in Canada is quite high and you might be wondering about available debt consolidation services in your area.
For instance, for every $1 of disposable income a household makes, they owe more than $1.50.
Debts can be a huge hindrance especially when you have to make monthly payments on more than one or two debts.
Luckily, that’s where we come in.
What is Debt Consolidation?
Debt consolidation is the act of combining two or more debts into one to make the payment process easier.
The goal is to make multiple debts more manageable.
Debt consolidation helps get better payment terms such as lower interest rates.
After consolidating the debt, many people often take out one single loan to pay off the existing debts.
Remember debt consolidation does not automatically free you from debt.
It simply helps you transfer all your debts into one single lender.
The two types of debt consolidation services that exist include unsecured and secured.
Consolidation works by allowing consumers to have one major debt which they can focus on paying.
Instead of having multiple debts that are more difficult to pay regularly.
How Debt Consolidation Loans Help
A debt consolidation loan is the best option when you have to pay multiple debts but can’t due to various reasons.
Taking a debt consolidation loan helps avoid high-interest payments.
It also allows you to pay off multiple debts and remain with one single debt.
This then helps you make minimum monthly payments on the debt consolidation loan.
You can apply for a debt consolidation loan through your credit card company, credit union, or bank.
A secured debt consolidation loan is one that has collateral such as a house or car.
An unsecured debt consolidation loan has no collateral.
You may not get a debt consolidation loan if you have a bad credit score.
But there are other options.
Using Your Home Equity to Consolidate Debt
If you don’t qualify for a debt consolidation loan, you can get a home equity loan.
But what is home equity?
It is the amount you own once you subtract any debts that you owe on it.
Home equity loans may come with a lower interest rate.
But you can also take out a second mortgage though this may have a higher interest payment.
Home equity loans help you pay off your debts by giving you a lump sum amount based on the amount you still own of your house.
These loans are secure because they use the house as security.
It’s worth noting that you may lose your house if you can’t pay off your loans.
Beware before using home equity as a debt consolidation solution.
Benefits of Home Equity Loans
The biggest advantages of home equity loans include:
- Streamlining debt payments: A home equity loan helps you streamline all your debt payments into one single debt.
- Saving interest payments: The loans help you save some money because of lower interest rates. Additionally, paying off all your debts at once also allows you to get more discounts.
- Less monthly payments: A home equity loan is also advantageous in that there are fewer monthly payments.
If you are not comfortable with home equity loans as a way of consolidating debt, there are other options.
Using Your Line of Credit
A line of credit is a borrowing limit that a bank or other financial institution opens for you and allows you to repay and then borrow again.
Lines of credit can also come with security or unsecured.
This form of credit has a limit that you can’t exceed.
A line of credit is also flexible because you can borrow as long as you make the minimum repayments.
Some types of lines of credit include a demand line of credit, a business line of credit, and a personal line of credit.
Additionally, you can adjust the amount you pay based on your cash flow and budget.
Benefits of Consolidating Debt Via Lines of Credit
Some of the advantages of consolidating debt using lines of credit include:
- Flexibility: Gives you the freedom to pay off the credit as slow or as fast as you can,
- Low-interest rates,
- May require no security which is a big advantage and help you retain your assets.
Lines of credit often require you to have a very high credit score.
This is because they are mostly unsecured and thus banks or financial institutions try to limit the number of people who can qualify.
Consolidating Debts Using a Credit Card
A credit card can also help you consolidate your debts.
You can do this by transferring all your credit card debt balances to one single card.
This helps you make one monthly payment on one single card, instead of making multiple payments.
Besides, credit card consolidation gives you less interest or eliminate interest.
This lowers the monthly minimum amounts you have to pay.
Credit card consolidation is a great way of helping you eliminate debt, especially unsecured debt.
The two main ways of consolidating debt using credit cards are:
- Balance transfer: This is where you move all the credit card balances into a new credit card.
These cards have an APR rate of 0% which offers you an opportunity to pay the debt interest-free for a limited time.
- Using a debt management program: This program helps you come up with a repayment plan.
You can set up a debt repayment plan with a professional credit counselor.
This will help get better repayment terms from your creditors and even reduce the amount of interest you have to pay.
Talking to a Bankruptcy Trustee
Another way of consolidating debt is by talking to a bankruptcy trustee.
The bankruptcy trustee will help you file for a consumer proposal.
In this case, they are known as a consumer proposal administrator.
The proposal asks your creditors to reduce the amount of debt you have to pay.
The proposal can only work if the creditors agree to it.
If they agree, you will have an opportunity to pay off the reduced debt for a certain period such as five years.
Get Out of Debt Today
The quickest way to get out of debt is by paying them off, by not borrowing more.
But this may not be possible due to many reasons.
The good thing is that we are here to help you in consolidating debt.
Contact us today to learn more about our debt consolidation services and let us help you become debt-free.