When we take stock of our finances, it can be easy for our debts to overwhelm us. We see our credit card balances and other consumer debts, and we can feel as if there is no hope that we will ever pay off our creditors. Those living with the burden of debt often experience fear, anger, frustration and even depression. Entire families suffer from the effects of heavy debt as worry and resentment cause loved ones to withdraw from each other. These problems are real, but consumers are fortunate to have many options that make getting out of debt a real possibility. Debt consolidation loans are one option that allow debtors to pay off their consumer debt with single affordable monthly payments.
Debt Consolidation Loans Canada
When it comes to debt consolidation Canada is seeing increasing numbers of its residents looking for a way to reduce the number and amount of monthly debt payments. Debt consolidation loans involve combining several high-interest loans or debts into a single debt with a lower interest rate. A debt consolidation program works to simplify life for the consumer by replacing a number of bills with one lower monthly payment. For example, a consumer with four credit card bills can get a debt consolidation loan to pay off the credit cards, resulting in one payment, rather than four.
Advantages of Debt Consolidation Loans Include:
- One monthly payment. The fact that you are left with one payment means that you no longer have to worry about sending payments to several different banks and creditors. Having multiple payments increases the odds that you will forget to pay a creditor, and missing a payment can impact your credit negatively. It is far easier to pay one payment each month, and it is unlikely that you will forget to pay the one consolidation loan.
- Lower interest rates. A debt consolidation company will typically charge a lower rate than credit companies charge. If this is the case, the debt consolidation loan will reduce interest payments and help eliminate credit card debt completely. This frees up more money each month that you can use for other expenses or to pay extra toward your loan principal.
- Lower monthly payments. Consumers are generally offered the option of a longer repayment period, which will lower monthly payments. The consumer no longer needs to spend all monthly income on debt repayment, a great incentive to consolidate debt.
- Prompt payment to creditors. All creditors will be paid quickly, reducing the chance of damage to the consumer’s credit rating. Following the terms of the consolidation plan and making timely payments will further protect your credit rating and in some cases may actually help improve it.
- Reduction of pressure from creditors. A debt consolidation program will end telephone calls to the consumer from various creditors seeking payment as from their perspective the debt has been paid.
- Simplification of the household budget. With only one payment to manage, much of the stress of household budget management is relieved.
An online debt consolidation company will tell you if consolidation is the best course of action. Certain types of debt are eligible for consolidation, including credit card debt, consumer loans and public utility debts. People seeking to consolidate debt may not include mortgage debt in consolidation programs. Consumers looking to lessen their financial burden should draw up list of current debts to calculate total debt. A trained credit counsellor will effectively determine if consolidation of debts will be of benefit in each particular case. The consumer can compare monthly payments with and without a consolidation program.
Are There Disadvantages to Consolidation Loans?
Canadian debt consolidation is probably the most common debt solution for anybody thinking of getting out of debt. And although it is far better to consolidate loans than it is to continue paying many different creditors, consolidation loans are not necessarily the best option for retiring your debt. Many people who go down this route end up with more debt than they had to begin with. This is because you do not lower the principal you owe when you consolidate your loans. The interest rate is lower, but after consolidation, you will still have to pay off the total amount you owed before you consolidated your loans.
Consequently, debt consolidation may not significantly shorten the length of time it will take to pay off your debt.
Debt settlement is a better option if getting out of debt faster is your goal. Under a debt settlement plan, creditors agree to forgive part of the principal that you currently owe. This means that your debt load is lightened considerably, reducing the time it will take to pay it off. The average interest rate on your debts is usually lowered as well, making it even easier to pay off your creditors.
The drawback to debt settlement is it will hurt your credit score, making borrowing later on more difficult.
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