What is debt consolidation?
Debt consolidation is a method of combining multiple debts into one. A single debt consolidation loan can often reduce your interest charges into a single, simple, easier to manage repayment.
This help you take back control of your finances, and reduce the stress and other impacts debt creates in your daily life.
What is a debt consolidation program?
A debt consolidation program in Canada is a financial solution that allows individuals to combine multiple debts into a single repayment.
This process involves taking out a new loan to pay off existing debts, leaving the borrower with a single monthly payment to manage.
The primary goal of a debt consolidation program is to provide debt relief by simplifying finances and potentially reducing interest rates and monthly payments.
This approach can be particularly helpful for individuals with high-interest credit card debt, personal loans, or other unsecured debts that are difficult to manage.
By consolidating these debts, individuals can potentially lower their overall interest costs, reduce their monthly payments, and work towards being debt-free.
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How does debt consolidation work?
The debt consolidation process typically involves the following steps:
Make a loan application
To consolidate debt, the first step is to apply for a debt consolidation loan from a bank or credit union, or other financial institution.During the application process, you’ll need to provide information about your current debts, income, expenses, and credit score.
Get approved for the loan
If you’re approved for the loan, the lender will provide you with the funds to pay off your existing debts. This typically involves the lender sending payments directly to your creditors on your behalf.Begin making your monthly payments
Once you consolidate debts, you’ll be making a single monthly payment to the lender instead of multiple payments to different creditors. This can make it easier to manage your finances and ensure that you’re making your minimum payments on time.Repay the loan
You’ll need to make your monthly payments on time to repay the debt consolidation loan. Depending on the terms of the loan, this process can take several months to several years to complete.What debts can be included in debt consolidation?
Most unsecured debt types can be included in your debt consolidation plan.
These may include:
- Credit card debt: Credit cards are the most common debt types involved in debt consolidation loans – A high credit card balance is one of the main reason for consumers taking out consolidation loans
- Credit Union unsecured debts or credit card debts
- Retail store credit card debt
- Unsecured personal loans: An unsecured loan, also known as an unsecured personal loan, is a loan that isn’t protected by a collateral item such as your home or vehicle, or another person co-signing for your repayments
- Payday loans
- Auto repossession debt If you failed to keep up payments for car loans, you might be able to include those in a debt consolidation plan
- Home equity loan
- Loans with a high interest rate
- Utility bills
- Cell phone bills
- Gas cards
- Non-government student loans A private or non-government insured student loan debt that is straining your finances can often be included in your debt consolidation
- Medical bill debt Not all medical bills are eligible, but many are. Consult your credit counsellor to find out if your medical debts are appropriate for consolidation
- Other unsecured lines of credit
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Why do people use debt consolidation?
Debt consolidation can be a simple and effective way to manage your debt and help you save money in the long term.
Not only will a consolidation loan provide experience in budgeting, it allows you to repay various debts with one affordable monthly payment.
Your plan will include:
- One monthly payment
- A fixed-term to repay your debts
- Reduced or removed interest charges
- An end to collection calls and legal action
- Professional guidance and advice
Advantages of a Debt Consolidation in Canada
- Debt consolidation results in lower monthly payments, tailored to your income and expenses.
- With a manageable repayment plan, the constant worry of paying back borrowed money can be alleviated.
- The consolidation loan is designed around an acceptable standard of living for your personal circumstances.
- An official debt consolidation program provides access to a credit counsellor for expert advice on various options.
- The program offers information about budgeting finances over the term of the loan and for the future, promoting better financial understanding.
- Consolidating debts halts any harassment or legal action from payment collections.
- Debt consolidation can help start repairing your credit report, showing future lenders responsible debt management.
Disadvantages of a Debt Consolidation in Canada
- Mistaking debt consolidation with debt settlement can lead to significant credit damage and worsen the situation.
- Debt consolidation is not the ultimate solution to debt problems, it’s just a management tool.
- The interest rates on a debt consolidation loan may be higher than expected.
- If not managed properly, debt consolidation could lead to more debt.
- Debt consolidation loans are difficult to obtain without a good credit rating.
- There’s a risk of incurring a higher overall cost with debt consolidation.
- To qualify for a debt consolidation loan, you may be required to provide some form of collateral.
Am I eligible for a debt consolidation?
To be eligible for debt consolidation, your total monthly debt will likely be higher than 20% of your income.
Debt consolidation is available for people in any situation. You will not be judged on your level of income or employment status.
Our professional debt experts will help find the most suitable consolidation plan for your unique situation and guide you through the whole process.
Where can I find out more about my debt consolidation options?
Before you sign up for debt consolidation or any other debt management program, you should always seek guidance from a debt professional. This is where A Fisher & Associates can help.
As a Licensed Insolvency Trustee (LIT) and provider of reliable debt solutions, we can explore all the debt relief options available to you and help you choose the one that best fits your circumstances.
For reliable debt advice and support to regain control of your finances, get in touch with one of our advisors today.
Write off up to 80% of your unaffordable debt
We’ve helped thousands of people, just like you, write off unsecured debt they can’t afford and enjoy a life free of pressure from the people they owe money to.
If you’re looking for help, or you’re worried about your ability to repay the debt you owe, A. Fisher & Associates is here to support you.
For free advice and guidance tailored to your financial situation, you can talk to one of our debt experts today. Give us a call for free on 416-842-0040
