Finding Your Financial Footing through Debt Consolidation

18 Jul

2013

Across Canada, people struggle with debt every day. Sometimes producing stress and anxiety, debt can cause people to feel like they are out of options. Personal debt has reached record highs, as has the number of Canadians looking for financial help. In fact, between 1999 and 2008, total consumer borrowing skyrocketed from $4.6 trillion to $12.7 trillion. Since then, consumer debt has fallen by $1.4 trillion. One of the tools in the arsenals of credit counseling firms is debt consolidation. After consolidation debt doesn’t disappear, but it becomes easier to manage.

Through the debt consolidation process, those with many loans are able to combine all of their debts into one loan to make repayment easier by taking out another loan. The process isn’t difficult to understand, but it’s not right for everyone, so research is an important first step.

What Is The Benefit of Debt Consolidation?

When you consolidate debt, you’re basically taking out one big loan to pay off several other loans. The trick is to find one with an interest rate low enough that you’re paying less than you would have otherwise. Besides paying less, it also eliminates the stress of having several monthly payments. Consolidating debt means you only need to make payments on one loan.

How Exactly Does Debt Consolidation Work?

There are two major options in debt consolidation. You can take out a secured loan, using a valuable asset like a house or car as collateral, or an unsecured loan using only your credit to back the loan. A secured loan is likely to have lower interest rates, but those using homes as collateral need to be certain that they can afford the extra payments. Defaulting on a loan that uses your home as collateral means that the loan provider can repossess your house. That said, it can be difficult for those with bad credit to get unsecured loans. Once you’ve decided what kind of loan you want to take out, you’ll need to decide if you want to get a loan through a bank or finance company, take out a second mortgage, or take advantage of a credit card offer.

Banks and Finance Companies

Banks will usually offer the lowest interest rates, especially if you already have an account with them, but they’re unlikely to approve those with low credit scores for loans. Finance companies, on the other hand, are generally more willing to take risks on those with a lot of debt, but also tend to charge higher interest rates.

Taking Out a Second Mortgage

Again, its very important, should you choose this option, to make sure you can afford the payments or you risk losing your home. Despite this risk, there are some benefits. The interest payments are tax deductible and there are options for fixed interest rates.

Using Credit Card Offers

It’s important to be cautious here, as many credit cards offer low introductory interest rates, but they only last for 6 to 15 months. If you opt to consolidate using a credit card, it’s critical to make sure that you can aggressively pay off the debt before the interest rate goes up.

Through these options canada residents with debt problems can find solutions. Debt consolidation canada can make payments easier and return a sense of financial peace to those feeling overwhelmed. Credit counseling agencies are very knowledgeable and are a great resource for those considering debt consolidation.