If you’re struggling with multiple payments, debt consolidation can help you combine your debt payments into one. Not only does it help with debt management, but it can also save you money!
Several forms of debt consolidation are available in Canada. The most common involves getting a debt consolidation loan from your bank, credit union, or other financial institution.
Another possibility is a debt consolidation program, such as a debt management plan or consumer proposal.
Debt Consolidation Loans in Canada
A debt consolidation loan is a personal loan that allows you to consolidate your credit card debt, line of credit, car loan, and similar debt, into a single loan. This way, you only have one monthly payment instead of three.
Advantages of these loans include:
- Easier debt management: only one monthly payment.
- The possibility of a lower interest rate, reducing your total debt repayment costs so you can eliminate your credit card debt faster.
- Lower monthly payments when your interest costs are reduced and the term of the debt is extended.
Do You Qualify?
Not all debts can be consolidated. Credit card debt, utility bills, car loans and other personal loans can be consolidated, but mortgages cannot. To qualify for one of these loans you usually need to have fairly good credit and sufficient income to be able to pay the loan. When you apply, your bank may ask to see:
- Your monthly budget to determine if you can meet your loan payments.
- Your most recent tax returns and pay stubs as proof of your income.
- Your most recent loan statements showing exactly how much you owe.
- Your credit report and any other debts and notes about your credit history.
Depending on your credit, you may also need a co-signor or collateral, such as a car or a house. The bank may ask for an appraisal of the asset you will be using as security.
If you decide to use the equity in your home to refinance with a second mortgage, you can usually negotiate a lower interest rate and extend your payment terms over a longer period.
Alternatives: Debt Consolidation Programs
If your debt is too large for a consolidation loan to work, you may want to consider other programs that allow you to consolidate your debt, have one easy monthly payment, and help you get out of debt sooner. You have two options for doing this:
A debt management plan allows you to repay your debts in full, but can often have interest costs and penalties forgiven. Learn more about debt management.
A consumer proposal allows you to pay back a portion of what you owe while being protected against legal action from your unsecured creditors. Learn more about consumer proposal.
Both programs allow you to consolidate your debt into one, lower monthly payment.
If you’re considering debt consolidation in Canada, talking to an expert is the best way to explore your options and get out of debt sooner. For free advice, contact an advisor today.