Debt consolidation is exactly what it sounds like – you consolidate many of your small debts and pack them together as one entity. This can include credit card bills, student loans, personal loans and other monthly bills that need to be taken care of. A consolidated debt scheme can accumulate these small installments and simplify your finances with one single payment. But how does it work in Canada? Read this detailed article to know more. To get the lowest consolidated interest rates in the market, you can visit this page.
Debt consolidation is a financial tool where you do not individually pay off multiple loans and liabilities individually but instead combine them into one monthly payment. But every loan and debt has its own interest rates and return policies. So, to do that, one takes out a bigger personal loan, preferably at lower rates, to pay off the minor loans in one go. After that, you just have to pay that one extensive installment and not think about multiple small paybacks.
Debt consolidation is most popular among multiple credit cardholders who end up paying different interest and installments every single month. These are unsecured debts, and banks do not have any security to fall back on. That is why the interest rates are sometimes much higher than other loans and liabilities.
Many people in Canada have been using debt consolidation plans for a while. Here is how it works.
When you start a debt consolidation plan or loan, you need to check that the interest you pay is lower than the cumulative interest you were paying before. That is the only way to stabilize your finances, pay smaller installments, and have enough cash in hand.
A lower interest rate and longer payback time helps borrowers get more time to pay back the principal amount rather than just focusing on the interest rates.
When you consolidate your debts, you have a chance to pay off your debts faster and not miss any deadlines. This will help better your overall credit score. However, ensure that you do not take out any other personal loan in the meantime.
When you go for a debt consolidation plan, ensure that you have to pay only one single amount at the end of every month. That’s how your payments get simpler, and you do not have to keep track of different payments every month.
You need to understand your current financial conditions and determine your income stability before going for a debt consolidation plan.
However, many debt consolidation loan providers charge higher interest rates than what you previously paid. Make sure to do your due diligence about who you partner up with before you take the leap. Remember, the ultimate goal of debt consolidation is to secure a lower interest while reducing the hassle of managing multiple payments.
You have to submit your personal documents and financial data to the debt consolidation provider you choose. They will conduct their own due diligence. Once it’s verified, your application will get approved, and you will receive the money in your bank to pay off the other debts.
When you get a consolidated loan plan, the company or bank you partner with either lends you the money directly or makes a line of credit in your name to pay off your liabilities. If you get the money directly, it is your responsibility to pay off the other smaller debts in time; your partner is in no way liable for payments. It is a smarter decision to get the partner to pay the debts directly so that there is no monetary loss during the whole process.
There are various ways you can choose to consolidate your existing loans:
These are one of the simplest ways to pay off existing debts. The interest on these loans is generally high. However, it is still lower than what most credit card providers charge. Thus, if you have credit card loans to pay off, you would find a personal loan ideal. However, it would not work if you intend to pay off auto or home loans.
If you own a home, consolidating loans becomes easier. You can either borrow a revolving credit (HELOC) or a lump sum amount against the value of your home. You can then pay off existing high-interest loans and switch to paying back your low-interest home equity loan every month. The interest rates on such loans are one of the lowest since it is secured by your home.
Many credit card providers introduce periodic offers on their cards. You can use this opportunity to request a credit card balance transfer. In this case, your existing high-interest credit card due is transferred to a low-interest card. You can then use this promotional period (during which the new credit card provider charges less interest) to pay off your debt.
It is an effective method if you have high amounts of credit card dues. However, make sure you do not get a new card before paying off all your current dues. Doing so might hurt your credit score.
With the right partner, you no longer need to struggle with mounting debts breathing down your neck. Throughout the process, you just need to stay aware of your options and your financial conditions and need to reach proper financial stability with a debt consolidation plan. Do not succumb to the pressure of loans; move wisely and solve the crisis with financial experts.