The Secrets Behind Personal Debt Consolidation Loans in Canada
Are you currently exploring personal debt consolidation as a way to escape debt that you have accumulated?
Here’s everything that you need to know about this particular option.
There are numerous ways to escape a significant level of debt that you are dealing with.
It’s important that you don’t rush into one option without considering the pros and cons as well as whether it will be the right decision for you.
You might want to use debt consolidation.
Debt consolidation can be useful if you owe money to a variety of different creditors.
Or, if you are dealing with a high level of interest.
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The idea behind debt consolidation is that you take out another loan to cover all of your existing unsecured debt.
Ideally, this new loan will have a significantly lower rate of interest.
This will make it easier to afford in the long term.
There are numerous businesses on the market that provide this option to people who are suffering in debt.
Many offer fantastic promises of providing a way to immediately escape your debt, but that’s not the concept behind debt consolidation.
This is a long term solution and it can be quite a road to escape your debt because unlike other possibilities, you’ll be paying it all off.
Furthermore, there are issues to be aware of such as:
- Problems with privacy;
- Legal records;
- Extra fees;
- High interest.
When you fully understand these issues, you will know whether this is the right choice for you.
Understanding The Problems With Privacy
Once you start exploring the market, you might find businesses that offer you a way to have your cake and eat it too.
These are debt consolidation loans that provide a way to get a lower interest rate on the debt that you owe while also ensuring that you only pay a fraction of the debt.
Some businesses claim that they can clear between 70 and 80% of your debts.
You might think this sounds too good to be true and potentially it is.
There are definitely some downsides to this possibility.
The main problem is the factor of privacy.
To clear your debt, there will need to be a legal proceeding.
The issue with this is that if there is a legal proceeding, then there will also be a public record.
Anyone who pays just an $8 fee will be able to search for this.
That includes your landlord, your future potential employer or maybe just your next lender.
So this will impact various areas of your life, some of which you might not consider.
That said, sometimes a legal proceeding like this is going to be the best option for some people.
That will be the case if the debt that you are currently facing is completely unmanageable.
Are They The Real Experts?
There are licensed professionals on the market who can help you gain relief from your debt.
There are also non-profit organizations that have no bias and no reason to push you to make a decision that isn’t going to benefit you.
However, there are also those who refer to themselves as “debt consultants.”
These self-proclaimed experts may not be as knowledgeable in the subject as you might think.
They may have no formal training in finances and potentially no experience in personal finance.
There’s no accreditation system for these companies which means that there’s no system in place to regulate the services that they provide.
They are not accountable to a specific organization.
They can even refer to themselves as “government approved” which might just mean the government hasn’t shut them down.
You might find that the advice they deliver is helpful on some level.
However, the main issue with services like this is that they will often charge thousands and thousands of dollars when they can get the same advice for free from a different organization.
Usually, while it’s claimed this money is for a service, the client is actually redirected to an independent trustee and this is where the true value comes from.
The trustee then charges the client another fee and keeps about 20% of the monthly payments if they proceed with a consumer proposal.
This is the main way that the percentage of the debt that you need to pay can be cut down.
You might also find that they are working with a bankruptcy trustee whom they might refer to as a “court officer.”
It’s not honest and a lot of it is smoke and mirrors to make it seem like you’re getting more than you actually are.
Furthermore, these companies often will have an incentive to push you down a particular path.
So, they won’t always provide you with all the options available to you.
This means that you could be missing a possibility that is more beneficial to you and will provide you with key advantages that you could definitely be interested in.
Their aim is to make the most money from you and this is definitely going to lead to some questionable decisions, even when it seems like they are helping you.
For instance, many of these businesses won’t provide a debt consolidation loan option.
As well as this, many of their team members are paid on commission, just like a sales team.
So, it’s again in their best interest to lead you down a path that will bring the most money in for the company.
High Fees And High Interest
It’s common for businesses like this to be advertised as a fantastic option for people who are struggling with debt.
For instance, many suggest that they are the best way forward if you are thinking about taking out a second mortgage.
However, they are keeping a few things a secret.
We have already mentioned the fees which are some of the highest that you will encounter on the market.
But what about the interest rates?
Despite being advertised as a great option, you’ll often find that the interest rates are some of the highest on the market too.
So, they’ll hit you in a variety of different ways.
Indeed, if you put the fees and the interest rates together then it can be comparative to just leave the debt accumulating interest on the credit cards.
You could wonder why you even bothered which should never be the case when you use a solution like this.
Will It Be Successful?
Are you curious about the success rates of consolidation loans?
Well, according to financial experts, consolidation loans are not as helpful as they seem.
The reality is that as many as 75% of those who are in debt and use a consolidation loan begin to build up the debt again within just a couple of years.
The reason for this is that they don’t make changes to their lifestyle.
This is not a requirement with a debt consolidation plan whereas if you opt for a consumer proposal you are required to attend two financial counselling sessions.
If you do use a consolidation loan, you need to be aware that this is only the beginning.
You have to take measures to ensure that the debt doesn’t build again before you even finish paying off the debt that you have already accumulated.
There are a few ways to do this.
However, the best way will be to ensure that you are building up your savings.
With the right level in savings, you can make sure that even if you run into unexpected costs, you’ll be able to handle them the right way.
Furthermore, a lot of debt management teams simply aren’t that interested in ensuring that their clients are successful.
Instead, they are far focused on ensuring that they get a high number of sign ups for the service because this is how they are able to make their money.
What happens once you have used their service is relatively inconsequential to them in a lot of cases which puts you in a weak position.
As well as this, those who do focus on getting a lot of sign-ups will often have lower levels of success because they offer a cookie-cutter service.
Ultimately, this means that everyone gets roughly the same solution which doesn’t work because the right solution will depend on a variety of factors regarding your financial situation.
What’s The Right Step To Take Here?
It might seem as though we have painted quite a bleak picture of debt consolidation loans and the general market of companies that help you escape debt.
However, while there are certainly sharks in the water, there are also life rafts.
You just need to be able to find them and recognize the organizations that can actually help you and care what happens once you use their service.
If you’re stuck in debt, we can help.
Our expert team has years of experience on the market and we have helped more than 100,000 Canadians escape their debt.
So, we’re confident we can help you too.