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Debt Consolidation In Canada

Debt Consolidation: Everything You Need to Know

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People consolidate debt when they want to make it simpler to pay or when they are facing a debt crisis. Debt consolidation is frequently one of the first choices they examine, particularly when it comes to credit card debt. Some common goals of debt consolidation include:

  • Making a single monthly payment to cover all your debts (instead of juggling various payments to different creditors).
  • Paying off your obligations at a lower interest rate than you’re currently paying on them.
  • To have a debt repayment strategy (instead of relying on minimum payments to eventually get you debt-free).

In Canada, debt consolidation can be accomplished in a variety of ways. Especially, with certain debt consolidation alternatives offering significant advantages over others. However, there are certain potential hazards to be aware of when it comes to establishing a truly beneficial debt consolidation.

Once you know what debt consolidation is and what are common goals of consolidation are, let’s dive into its details.

Types of Debt Consolidation

Many people believe that debt consolidation means that one bank pays off all of your other obligations.  This includes several credit cards. Then you repay the bank in full, with interest, at a lesser rate than you would have paid on the individual bills. Although you can choose to consolidate your debt with a standard consolidation loan, you also have a variety of additional borrowing and non-borrowing options.

However, your scenario will often lead to your decision regarding the alternatives available to you. Also, your individual goals and financial needs will play a large factor in determining the ideal consolidation option for you.

Consolidation Loans and Borrowing Options

Consolidation options based on banks may include:

  • A basic debt consolidation loan from a lender that allows you to pay off your various obligations by combining the balances into one new loan with interest.
  • A home equity consolidation loan allows you to borrow against your house’s equity. (This is also known as obtaining a second mortgage or refinancing your mortgage.)
  • Pay off higher interest bills via balance transfers from a line of credit, an overdraft, or another credit card.

It can be tough to qualify for a debt consolidation loan or other bank borrowing choices. The reason being is that consolidation lenders frequently demand you to pledge an asset as collateral. This includes a car or even your home. This requires a co-signer to guarantee the loan or requires you to have a high income or a high credit rating.

Many people are turned down when they seek a bank consolidation loan because of these conditions. Debt consolidation utilizing a non-borrowing option may be a better option to explore if you do not qualify for a bank’s debt aid with a consolidation loan and you want to reduce your monthly debt payment as much as feasible.

Consolidation Without Borrowing

Many Canadians don’t know that there are alternatives available as well. These alternatives are legal debt consolidation solutions that do not require them to take on additional debt. One of these alternatives is given below.

Consumer Proposal

A Consumer Proposal is legal debt consolidation or debt settlement agreement with your creditors. This allows you to repay only a fraction of your aggregated debts. With the unpaid balance of your consolidated debts being legally written-off/forgiven by your creditors. In a Consumer Proposal, ongoing interest charges are automatically halted. Also, any creditors who have commenced collection proceedings cease immediately.

Consumer Proposals to creditors are the most common way to consolidate and manage problematic debts. They are the most popular alternative to personal bankruptcy as well. They must be filed by a Licensed Insolvency Trustee and can offer significant advantages over debt consolidation loans.

Consumer Proposals allow you to lower your obligations, reorganize the time it takes to pay off all of your debts, or a combination of the two, all without accruing interest or paying additional costs. On the consolidated debt, you will only pay what you can repay, which is normally between 30 and 60%.

Thus, a Consumer Proposal is Canada’s sole legal debt consolidation option that can include government bills including taxes, school loans, ICBC payments, and more.

Debt Consolidation: Key Considerations

As there are various ways to consolidate your debt, the specifics of each potential consolidation option can make a major difference in how effective they are at assisting you in reaching your debt consolidation goals. Make sure you “do the math” completely and keep an eye out for problems and dangers like:

Debt Consolidation Eligibility

When it comes to consolidation, one question to answer is whether or not you qualify for the solution you want. When it comes to bank-based consolidation, most lenders ask that you have a good credit score and a good debt-to-asset ratio in order to qualify for a loan.

Consolidation Interest Rates and Fees

When you look at the fine print, the prices or savings potential of a consolidation solution may not be as excellent as it appears. So, make sure your budget permits you to make your monthly consolidation payments. Keep in mind that, except for a Consumer Proposal, most consolidation solutions will not cover all of your debts if you owe government creditors. A Consumer Proposal is generally the greatest alternative by a substantial margin if you are searching for the consolidation option with the lowest out-of-pocket expense and most affordable monthly payment.

What if Debt Consolidation Doesn’t Work for Me?

If debt consolidation is not a practical choice for you to resolve your debts, either through borrowing or non-borrowing ways, you might want to consider:

  • Directly contacting your creditors
  • Declaring Bankruptcy

If you’re feeling the weight of several debts on your shoulders, you might want to consider getting debt consolidation in Victoria. No matter, how severe your situation is and no matter how you got to this point, the Licensed Insolvency Trustees at your MNP LTD office are ready to help. You just need to seek it out.

You May Also Like: No Down Payment Mortgages: Everything You Need to Know

The Bottom Line

At Lionsgate, we specialize in helping people obtain funding for private mortgages for land purchases. We also help with other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, leave us a message and we will try to connect you with local realtors and sourcing for financing.

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