Is Debt Consolidation
Right For You?
Debt consolidation only works if you do not run up new debts after consolidating your old ones.
Consolidate Using a Debt Consolidation Loan
Pay Down Debt and Improve Cash Flow
Be Debt Free Sooner
What is Debt consolidation?
Use a debt consolidation loan to repay your debts to several or all of your existing creditors.
You are then left with only one outstanding loan.
Your consolidation loan may also save you money in interest charges since the new loan interest rates will be lower than your old loans.
Your monthly payment will be substantially less than the total of your old loan payments.
This is especially attractive when you have high interest credit card debt. Sometimes it seems that some credit card companies charge higher interest than the loan sharks.
Usually the new lender will pay off your old debt directly for their own protection. The only monthly payment you will have to make will be to them.
They frequently will ask you to cancel your credit cards so you do not run them up again.
Shop around before you choose a consolidation loan since the terms and interest rates offered by competing financial institutions will vary. Get the best deal you can before you sign.
Debt consolidation is suitable for credit card debts, public utilities or other consumer loans.
However, not all debts, such as a mortgage, can be combined into a consolidation loan
In order to qualify for a consolidation loan, you will need an acceptable credit rating and sufficient income to manage the monthly consolidation payment, in addition to paying for their regular monthly bills and expenses.
How much does it cost?
It does not cost anything to apply for a consolidation loan . However, a fee may be charged to open your file.
IS DEBT CONSOLIDATION RIGHT FOR YOU?
YOU CAN PAY DOWN DEBT, IMPROVE CASH FLOW, SAVE INTEREST COSTS.
Is it a good idea to consolidate your debt?
Consolidating debt with a loan could reduce your monthly payments and provide near term relief, but a lengthier term could mean paying more in total interest
How does debt consolidation affect your credit score?
What Are The Risks of Debt Consolidation?
You must pledge assets as collateral in a debt consolidation
If you can't pay the loan back, you could lose your house, car, life insurance, retirement fund, or whatever else you might have used to secure the loan.
Some people will use the consolidation loan to pay down credit card debt or similar and then run up the credit cards again radically increasing their overall debt. You need self control to avoid this temptation.
Other Ways to Consolidate Your Debt
Home Equity to Consolidate Debts
Refinance Your Home or Get a Second Mortgage
Home equity is what’s left when you subtract what you owe on your house from what it’s worth.
Depending on how much equity you have in your home, you might be able to borrow against it and use the cash you get to pay off debt.
If you refinance your home to do this, you could face some stiff fees so consider the cost carefully
Line of Credit or Bank Overdraft to Consolidate Debts
You may be able to use your line of credit or bank account overdraft to consolidate your debts into one monthly payment.
Debt Consolidation Using Credit Card
You could use a low interest credit card to pay off other debts, but most people would not have enough credit to truly consolidate all their debts
Credit cards can be a trap because after you make a payment, unless you’re maxed out, you can use your credit card again. You never get anywhere but deeper in debt. Low interest credit cards are no exception.
Debt Management Program
Caution Debt Management Program is just another name for credit counselling programs.
A Debt Management Program (DMP) is a way of consolidating your unsecured debts without borrowing more money. It combines your debt and is managed by a credit counselling firm.
You make one monthly payment that fits your budget. Beware of hidden fees. So called non profit credit counselling companies are NOT free. You pay directly or through hidden fees.
Read This Before Deciding on Consolidation
Debt consolidation isn’t right for everyone, so here are three questions you should ask yourself before you start filling out loan applications.
Will the interest rate you receive be worth it? Before you consolidate, run the numbers and make sure a new loan is beneficial to you.
If you have serious credit problems, you may have trouble qualifying for a decent interest rate on your existing accounts with available debt management options, based on your credit. When you compare financing options side by side, it’s easy to see if consolidation is worthwhile.
Do you have a debt payoff plan? Consolidation alone usually isn’t enough to help you achieve freedom from debt. But if you’re willing to follow a debt payoff plan, a consolidation loan could fit into the process nicely.
Can you avoid new debt? The last thing you want to do is pay off something with a consolidation loan and start racking up charges. That’s a recipe for financial disaster. You need to be 100% committed to avoiding new debt or consolidation could snowball into a bigger money and credit problem down the road.
CanLaw Guide to the Law on Debt for the Layperson
On line Since 1996