Debt Consolidation in Canada
Personal debt can be overwhelming, especially if you’re trying to juggle multiple loans or credit cards and only making the minimum payments. If you are struggling to make you payments, a debt consolidation loan is an option to combines all debt into one manageable payment.
Debt consolidation is a larger loan used to combine all the unsecured loans such as credit cards and lines of credit. By consolidating your debt, you will have one easy monthly payment, and you’ll save on interest. Lend for All can help match you with lenders with competitive interest rates and once you’ve consolidated, you can apply any extra money toward your savings.
In Canada, debt consolidation is offered by banks, credit unions or other lending institutions. Regardless of whom you choose to borrow from, the key is debt management. If you are borrowing money to pay off a credit card for example, don’t charge it back up again. Debt can be a very stressful part of life, but when you manage it and know the tools available, it will feel like a big weight is lifted.
A solid debt management plan will help you plan to pay off your debt and restructure your spending. It is always a good idea to have someone help you manage your expenses along with debt consolidation to help you reach your financial goal faster.
The Advantages of Debt Consolidation
Manageable payment: Compiling all your loans into one will reduce your minimum monthly payments, that will allow a less restricted budget, with possibly room for savings.
Lower interest rate: More is going toward paying down the principal on your loans, therefore reducing your cost on interest. In the long term you are saving money.
Peace of Mind: One loan to repay eliminates the need to keep track of several bills with different due dates, which means you won’t miss any payments. Simplifying you finances with debt consolidations means everything will be paid faster and become a thing of the past.
Debt consolidation is one of the many debt relief options available to Canadians. Compared to other debt relief options, it’s a relatively less severe one. It’s a great option to look into if you need help managing multiple debts.
Before you start shopping for debt consolidation loans, read on to familiarize yourself with some of the most frequently asked questions on the topic.
What is a debt consolidation loan?
A debt consolidation loan is any loan which one uses to pay off high-interest debt, often from multiple sources. It works by combining or consolidating existing loans into one larger loan which is easier to manage and often more affordable. In the end, you’ll likely save money on interest and be able to pay off your debts faster.
How does a debt consolidation loan work?
A debt consolidation loan works just like any other type of loan. They can be secured or unsecured. The only difference is that once you’ve been approved, you use the money to pay off your high interest debts (credit card debt, personal loan debt, etc…). Note that certain types of debt, such as car loans and mortgages, can’t be paid off using a debt consolidation loan.
How do I apply for a debt consolidation loan?
- Find the right lender.
- Fill out an application and specify it’s for a debt consolidation loan.
- Submit documents and decide if a secured loan is the best option.
- Receive your loan (usually via direct deposit).
- Pay off existing high-interest debt without accumulating any more.
- Make debt consolidation loan payments on time.
What are the advantages of a debt consolidation loan?
- One payment to make in fixed installments.
- Affordable (usually lower interest rate) and easy to manage (one payment instead of many).
- You’ll be able to know the exact amount of time it’ll take to pay all your debts.
- Low Services charges and fees.
- A good opportunity to build back your credit.
What are the disadvantages of a debt consolidation loan?
- Often require collateral (secured loan) or a cosigner.
- Often requires a decent credit score.
- Unsecured debt consolidation loans can come with high interest rates.
- It doesn’t remove any of the debt amount, just makes it more manageable to pay off.
How do I get approved for a debt consolidation loan in Canada?
As with all financial products, getting approval depends on your particular situation. That being said, there are things most lenders are looking for, so being prepared when applying for a debt consolidation loan can help your chances of getting approved.
If you’re looking into getting a debt consolidation loan from a bank, you’ll likely need to have the following:
- Not too many late payments on your debts.
- Not too much total debt.
- No red flags on your credit report, such as accounts that are in collections.
- An income that will allow you to handle the loan.
These requirements might be too much for you to satisfy, but you have options. Instead of getting a debt consolidation loan from a bank. You can shop around for a private lender. The requirements of these types of lenders are typically more lenient than those of banks.
Can I get a debt consolidation loan with bad credit?
Getting a debt consolidation loan with bad credit is difficult, but not impossible. In this case, you would definitely need to provide some collateral or have a cosigner.
Will a debt consolidation loan hurt my credit?
When you apply for a debt consolidation loan, the lender will perform a credit check. This will temporarily hurt your credit score. But do remember that a debt consolidation loan can help you rebuild your credit because when you consolidate your debt accounts, they are considered to be paid – after that you’re only paying back the new loan you obtained to pay those existing debts off.
Also, every time you make full payments to your debt consolidation loan on time, it will positively impact your credit score.
What kind of debt can I pay off with a debt consolidation loan?
Unlike other loans, you can’t use a debt consolidation loan to pay for whatever you want. You can only use this type of loan to pay off credit card debt, payday loan debt, lines of credit, utility bills and other unsecured debts.
Do I need collateral to get a debt consolidation loan?
Generally no. You can apply for an unsecured personal loan to consolidate your debt. If you have bad credit though, your lender will most likely ask you to provide collateral or obtain a co-signer.
Why was I rejected for a debt consolidation loan?
As with all loans, it depends on your specific financial situation. Generally speaking, people are denied debt consolidation loans because they have bad credit, too much debt, or just can’t afford to handle the payments.
Can I get a debt consolidation loan without a job?
To get a debt consolidation loan, you’ll need to show that you can afford to make the payments. This will require you to show some type of consistent income. If you can’t, you will likely be denied a debt consolidation loan.