Canada is a beautiful city with lots to see and do, from listening to the Canada Symphony, shopping Uptown, wandering through the Butchart Gardens, or going whale watching during the summertime. But you can’t enjoy this beautiful city if you’re worried about debt. And unfortunately debt seems to be a fact of life these days, but it doesn’t have to be.
One option to help you get out of debt is debt consolidation. Debt consolidation is mostly used for credit card debt, but can cover a number of other debts and bills that have built up over time. The beauty of debt consolidation in Canada, is that all of your small bills and monthly payments are put together into one package, which saves you money through a lower interest rate, no late fees, and a regular monthly payment.
How Does Debt Consolidation Work?
Debt consolidation in Canada works in one of two ways.
The first way is getting a loan from a financial institution. If the loan is specifically for debt consolidation, the bank will pay your creditors for you, ensuring the money is used to reduce the number of creditors you have to worry about. If it’s a line of credit, a second mortgage or a basic loan, you will have more control over how the money is given to creditors, but the idea is to pay off the debts with the highest interest rates, late fees, and amount owing, first.
The second type of debt consolidation is only for credit card debt. Most credit card companies offer zero or low interest credit cards that will transfer all your debt into the one card. Removing the high interest debt and reducing how much you have to pay monthly.
Benefits of Consolidating Debt
If you get the right low interest loan, debt consolidation in Canada, is a way to deal with heavy debt, or debt that is spread out over many creditors. This has several advantages.
1. Lower interest payments and no more late fees.
2. It will not negatively affect your credit rating. In fact it can improve your credit rating as long as you keep up with the single monthly payment.
3. Reduces the amount of time it takes to keep track of all your bills, and calls from multiple creditors.
4. If it’s a debt consolidation loan, the bank will pay your creditors directly and could close unnecessary credit cards and store credit accounts, reducing the chance that you’ll rack up debt again on spur of the moment purchases.
The Downside of Consolidating Debt
Debt consolidation in Canada isn’t all rosy however, you have to do your research and plan carefully.
• You are not reducing your debt. If you are thirty thousand dollars in debt, spread over a number of creditors, you will still be thirty thousand dollars in debt after consolidating. The difference is you’ll only have one creditor and the interest rates should be lower.
• If you get a high interest loan, it is actually worse than keeping your debt spread out. You need a low interest loan if debt consolidation is going to have any chance of lowering your debt.
• There are fees when you get the loan. Banks have filing fees, credit card companies have various fees, and loan lenders can have a large number of hidden fees. This is why you need a low interest loan, to make sure you don’t pay more in the long run.
How Can I Get a Debt Consolidation Loan?
• To get debt consolidation in Canada, you generally need to have good credit rating. If your credit rating is poor, most institutions will deny you a loan unless you have a lot of collateral such as a house, or a co-signor.
• Second you need a job so that banks will know you can repay your debt.
• Third, you need to be totally honest with the lender. They will run a credit check, and if you lie or try to cover something up they will notice and it will be held against you.
• And fourth, only certain types of debt are eligible for a debt consolidation loan, mortgages, and larger loans are not among these. You could get a regular loan to cover these, but it is generally harder to accomplish.
Having a non-profit credit counsellor walk you through the process of debt consolidation in Canada, and helping you pick the right loan for you is the best idea. While it’s possible to do it all on your own, the possibility of missing something important and paying too high of an interest rate, or not planning your budget properly and paying more per month than you can afford is a real possibility. So be careful, plan ahead, and think carefully about consolidating your debt.
Being debt free is very possible, but you have to start soon and act cautiously.