Debt consolidation loanS in canada
You can use a debt consolidation loan to combine and pay off multiple debts. For example, instead of making several payments to different credit card companies, you could pay off your balances with the debt consolidation loan and then make one monthly payment to the company who granted you the loan.
Not all debt consolidation loan companies are created equal
When researching companies who provide debt consolidation loans, be sure to confirm the interest rate you will be paying on it. The interest rate on the debt consolidation loan should be lower than the rates on your other debts so that you end up with a lower monthly payment. This enables you to save money and pay your debts more quickly, and leaves you with fewer bills to keep track of. Remember to also ask about any additional management or service fees that will be charged.
Qualifying for a debt consolidation loan
In most cases, you must have either a job or another source of income that demonstrates you can repay the loan. In addition, you may need a co-signer for the loan or be required to provide collateral, such as your house or car, which you pledge to the lender as security to ensure you repay the loan.
One of the most popular kinds of debt consolidation loan involves refinancing a home. If the value of a house or a condominium that you own has increased beyond the value of the mortgage you hold on the property, you may be able to renew for a larger mortgage, or take out a second mortgage. You would use the mortgage funds to pay off high interest debts and pay only one monthly mortgage payment at a lower rate of interest.
If you are paying high interest rates on several accounts and you can repay these debts in full while wanting to reduce the monthly amount, debt consolidation loans can help. However, unless you are confident that you can afford the loan payments, you risk losing any assets you put up as security, or putting your co-signer in jeopardy.
Furthermore, after obtaining a debt consolidation loan, you should destroy all - or at least most – of your credit cards. Leaving unpaid balances on your credit cards will likely get you back into trouble.
For information about alternative options to a debt consolidation loan contact your local BDO office or request a call.