Home / Debt Consolidation Loans: Facts, Considerations, Other Options

Debt Consolidation Loans: Facts, Considerations, Other Options

One option to gain back control of your finances is to seek out a debt consolidation loan. This can combine all of your debts into one payment. The question then becomes, is a debt consolidation loan the right move for me?

Despite making regular payments the statement balances are either staying the same or maybe even going up a little bit. No matter the type of debt, whether it be credit card debt, income tax debt or other types of debt, it’s always better to get ahead of this problem than wait until the collection agencies start calling.

Applying for a debt consolidation loan is a good option to explore when you realize that you have too much high-interest debt. Trying to pay off the individual debts that have high-interest rates can become impossible. The high-interest rates mean that any payments you make are only paying interest with little reduction to the actual loan balance. This makes you a good customer for the lender because they are making money off of you. Debts that fall into this category include:

  1. Credit card debt with banks
  2. Credit card debt with other lenders
  3. Payday loans
  4. Installment loans
  5. Income tax debt

We provide a complimentary financial assessment where we can review your financial situation and assess whether a debt consolidation loan is a viable option for you. We can advise you of the documentation you will need to organize and which lenders to approach and who to avoid.

debt consolidation loanTry Your Bank First

The typical place to apply for a debt consolidation loan is your bank or credit union. You may have been banking with them for a long time and they are familiar with your finances. If approved, you can use the funds to pay off all of the individual debts and be left with only one new loan to pay. The best things about qualifying for a consolidation loan is you will have:

  • Reduced the overall interest rate that you are paying
  • Reduced the number of different payments you make monthly down to one
  • Perhaps reduced the overall amount of dollars that you are paying out monthly.
  • Made your financial life simpler

Pro tip: be especially careful about what amount of interest and fees that you are being charged on the debt consolidation loan. A debt consolidation loan may not be the right move for you if the monthly payments or the interest rate is too high. Generally, you want the interest rate to be much, much lower than what you are currently paying on your other debt.

Challenge to Get Approved

Applying for a debt consolidation loan is one thing. Getting approved for one is another. There are many possible reasons why you may not be approved for a new loan:

  1. Your credit score is not good. This may be because of several earlier missed or late payments.
  2. Your income is too low
  3. Your income has not been steady. The lender may want to see you have consistent income over a period of time before a loan will be approved.
  4. You owe income tax debt. This seems to make lenders uneasy and unwilling to loan as they may feel you will get back into debt again with Revenue Canada.
  5. You have not filed your income tax returns. See point number 4.
  6. The lender requires that you have a cosigner and you don’t have one.
  7. The lender wants some collateral to secure its loan and your assets don’t qualify as valuable enough.

Other Considerations

Even if you have been approved for a debt consolidation loan, there are some other things to consider before you sign on the dotted line. For instance,

  1. Your monthly cash flow – will the monthly payment required actually provide you with some relief to your monthly cash flow? We have seen some debt consolidation loan payments still be too much to handle.
  2. How long will it take for you to pay it off? Once approved, realize that you are required to pay back all of your debt plus interest to the new lender. Take a good look at the repayment schedule and note what year the last payment is to be made. If that date is too far in the future you might want to reconsider.
  3. Are you still running a deficit in your household budget? For that matter, what is a deficit? A monthly deficit exists if you are spending more than you are making each month. This results in a gap that must be met with even more debt. This could mean you are building up new credit card debt or missing payments on your phone or other utilities after you receive the debt consolidation loan funds. In order for any debt solution to work, your household budget cannot run at a deficit.

There are Debt Relief Choices

Maybe you have applied for a debt consolidation loan and been rejected. Or maybe you have applied, been accepted, but are still uncomfortable with the terms of the loan. The interest rate could still be too high or maybe the payment will not provide enough breathing space in the monthly budget. You might be thinking to yourself, is a debt consolidation loan the right move for me? Well, you should be aware that there are other debt-relief options available that may fit your situation better.

Before any big decision is made, we feel that it is important to get all the important information. As an independent office, we have the freedom to take as much time with you as you need in order to make an informed decision. In regards to dealing with debt, we offer a complimentary, confidential, no hassle appointment where we will take a look at your situation and offer you this information. Our experienced staff can help find you a debt relief option that fits your budget and will cost you less per month than the debt consolidation loan.

Government Regulated Options

The Government of Canada recognizes that Canadians from coast to coast can need to reset their finances rather than be stuck in a cycle of never-ending interest payments. To that end, the government has approved two options which they regulate.

The most popular government-approved option is a Consumer Proposal. This is a method of debt consolidation which is filed via a Licensed Insolvency Trustee (LIT). A Consumer Proposal will allow you to consolidate your unsecured debt into one monthly payment that actually fits your monthly budget. Lastly, during the Consumer Proposal process, your unsecured creditors are not supposed to contact you so there is peace and quiet.

If the monthly payments required to do a Consumer Proposal are still too much, the Government of Canada has also allowed for a person to gain debt relief via the bankruptcy process. Again, this must be filed by a LIT. While some may find that the word bankruptcy is scary, it can be the most practical, fastest, least expensive way to obtain debt relief so that you can get on with your life.

Contact Us

Please feel free to contact us to set up a meeting in person, by phone, or online in order to discuss your debt relief options.

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