Is debt consolidation for you?
Having many debts increases the risk of being in default and, therefore, can taint your credit history. To facilitate the repayment of your debts, consolidation can be an attractive solution for you.
Debt consolidation; consolidates debts into one payment per month generally offered at a better rate than credit cards, loans granted for consolidation also help reduce the monthly payment.
According to the Office of Consumer Affairs of the Government of Canada, the debts you could include, but not limited to, are cards and lines of credit, utilities, and other loans related to consumer goods. Note that loan cannot be included in a consolidation loan. Ask your financial institution for all the eligible debts.
Who can do debt consolidation?
She is wondering if your financial situation could benefit from debt consolidation? Here is a concrete example of how debt consolidation or consolidate payday loans can help regain control over your finances. Annie is a 30-year-old professional who accumulates $ 20,000 in various debts, mainly credit cards, in addition to her student loans. She manages to pay the minimum required, most of the time, but feels that she cannot control. She thinks she should resort to the consumer proposal and try to find an arrangement with her creditors. She is even considering bankruptcy. During a meeting with a financial advisor, the latter offers him debt consolidation.
According to Éric Lebel, turnaround advisor and partner at Raymond Chabot Grant Thornton, debt consolidation is an option for people who have a good credit history. “Before you think about debt consolidation, it’s important to make sure you’re creditworthy,” he says.
Solvency, or insolvency, is the ability or not of a person to pay their bills and debts as they fall due. In his practice, Mr. Lebel meets many people who hope to make a debt consolidation agreement with a financial institution. “It is sometimes their last hope,” he said.
How to Apply for Debt Consolidation?
Above all, the bank assesses the risk you represent. It studies your credit report, your debt ratio, your repayment behavior, and your ability to pay your loans. “If the bank believes that you would have had trouble repaying other creditors, it may not grant you the loan,” says Lebel.
Banks may require collateral through an endorser. “If you have a good job and equity in your home, for example, you could be a good candidate, depending on the amount of debt you need to consolidate,” he says.
Do you have the capacity to repay your debts?
To find out if debt consolidation is an attractive option for you, you could start by assessing your ability to pay the loan required for all of your debts. “You have $ 20,000 in credit card debt from financial institutions and department stores at rates of 19% and 29%. By consolidating these debts, even at a rate of 12%, the monthly payment will be lower and the amount of interest paid at the end of the term, lower. It is therefore advantageous. “Explains Mr. Lebel. Paying less attention every month allows you to turn around your finances by paying off more capital.
If you have experienced financial difficulties and do not qualify for debt consolidation, you can apply for a second chance at credit. Carefully repaying this loan every month restores your credit history and increases your chances of getting a traditional loan or consolidating debt.
When due (maximum period of 5 years), you will have repaid all your debts. The term is generally shorter than the due date for the repayment of credit cards with a higher interest rate.
By making a consolidation, the overall debt remains identical, contrary to the consumer proposal. And even after consolidating the balance on credit cards, remember that the amount of debt to be paid will increase if you continue to use them.
For Label, there are few disadvantages to debt consolidation. “On the other hand, finding a bank that will accept to lend you money to reimburse other banks or creditors will be easier if you do not have financial difficulties,” he concludes.
It is never too early or too late to take charge of your finances. Give yourself some time to review your financial habits and make sure you’re on the right track in achieving your goals. If in doubt, your financial advisor can help you.