Debt consolidation works by combining your smaller debts and turning them into a single, larger debt. The goal of debt consolidation is to help you get a lower interest rate. If you are looking to consolidate your debt in Canada, here are the things you should know.
In Canada, there are several types of debt consolidation options that you can consider when unifying your small debts into a single, larger loan. These are home equity to consolidate debts, bank overdraft or line of credit consolidation debt and the credit card consolidation debt. A Debt Management Program is also available.
When resorting to debt consolidation, you can also use your home and other existing assets as collateral. You can use such assets to have higher chances of securing a loan from creditors. Using your other assets as collateral to debt consolidation will benefit you in so many ways. For one, it will help you get an even lower interest rate than you have expected. In another, it will also give you higher chances of bargaining with lenders.
Overall, the ultimate goal of getting into debt consolidation is to get a lower interest rate for those many loans you have decided to consolidate. When your interest becomes lower, bulk of the amount from your monthly payments will go down to paying the principal thus helping you to repay your debt quicker. However, you have to take note that applying for debt consolidation is only applicable in certain scenarios.
Apply for debt consolidation when you are paying credit card obligations. The reason why debt consolidation is ideal for this type of debt is the fact that credit card payment comes with a very high interest rate that is even larger than what a bank’s unsecured loan can ever charge. You know very well too that aside from the interest rates, finance charges also come with your credit card debt. Therefore, if you have many credit cards and you feel you cannot repay them all, you can consolidate the debt.
You can use it also to pay high interest loans that may have been causing your principal to remain the same. Meaning, even if you have been paying your loan, the amount you pay monthly goes to repaying the high interest rate.
It is quite difficult to secure debt consolidation loan when you have a bad credit rating. This is because lenders will always look at your payment history alongside your credit score. If you have defaulted on your existing debts, you will be marked with a red flag, meaning you might not be considered a good candidate for debt consolidation.
However, you can still avail of debt consolidation even with a bad credit rating provided you fulfil the prerequisites. You should be able to offer a security on your loan or at least look for someone who has good credit standing and can be your co-signer in the new debt agreement. Take note that whilst you have fulfilled all these requirements, you should also expect a higher interest rate when compared to those people availing debt consolidation with good credit standing.
When you are in debt consolidation, you may still have your credit cards with you. You may be tempted to swipe them once more once you have seen an item that you want to buy. Do not do that unless you are ready to face another debt trap. Also, when you applied for a debt consolidation program, you should also be ready to make prompt payments. Otherwise, your credit standing will be affected. In case you have used your home as collateral then there is also a risk of losing your home once you have defaulted in payments. Just like any other type of debt, you have to be responsible enough when it comes to paying your debt consolidation obligations if you want to avoid all the hassles.
Creditors will certainly look for a few things to allow you to avail of debt consolidation from them. You do not need a perfect credit score but you must have an acceptable rating. You should also have a regular source of income to give your creditors that confidence in you. After all, you can only repay your debt when you have regular income sources. Additionally, creditors will look into your monthly expenses. They will use this in order to find out whether you are capable of paying your dues with the other monthly expenses you incur.
There are indeed many things to know about when you want to avail of debt consolidation. You can avail of them in different types depending on what requisites you meet. For more about debt consolidation, you can consult us.