Debt relief is on the minds of nearly everyone in Canada today and with good reason. Although the rate at which the average consumer is adding to his or her debt has declined, the average amount of consumer debt that Canadian consumers are carrying continues to increase. As debt levels increase, so do interest charges, creating a snowball effect that leads to ever-increasing monthly payments. If one is not careful, it is easy to get behind on one’s debt and never catch up.
Canadians who are struggling to pay their debt, however, do not have to suffer under the burden of high interest payments any longer. If you qualify, you can save a lot of money with a debt consolidation loan.
The Basics of Debt Consolidation
Through debt consolidation, you take out a single loan and use it to pay off all your existing debts. The advantage of debt consolidation is you will:
- Only have one monthly payment (frequently lower than the total you were paying on your debt before consolidation)
- Typically lower the average interest rate that you have been paying, leading to savings of potentially thousands of dollars over the life of your debt
Debt consolidation is different than debt settlement and other programs that end up reducing your principal. Because of this, the total savings you experience are not usually as great with debt consolidation as they are with debt settlement despite the lower interest rates that you typically pay on consolidation loans. The benefit of debt consolidation is it doesn’t harm your credit much compared to debt settlement and other more drastic debt relief solutions. Often your credit score will actually improve as you make your monthly payments on time.
Who Are Debt Consolidation Loans Good For?
Debt consolidation loans are generally a good choice for those who can still make their minimum payments and have less than $10,000 in unsecured debt. Those who owe more than that will be in consolidation too long for it to have any real advantage over a debt settlement program, a consumer proposal, or bankruptcy.
How Are Debt Consolidation Loan Rates Determined?
Because interest rates on these loans are determined by your credit rating, those with the best credit scores get the lowest interest rates. Those who qualify for debt consolidation and have excellent credit can typically see a reduction in their average interest rate of 5 percentage points or more. Over the course of a year, that represents a savings of about $500 on a consumer debt total of $10,000 (assuming an average 10% interest rate to start with). Of course, that $500 can (and should) be put towards the principal of your debt.
Is Debt Consolidation my best option?
The only way to be sure if debt consolidation is the right choice for you is to contact a professional service for a free debt consultation. They’ll be able to answer all of your questions about each debt relief option in Canada.