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Overview
When you owe money to many different creditors, managing monthly payments can be overwhelming and it’s easy to feel like you may never get ahead. As Licensed Insolvency Trustees, we are committed to finding the best options for dealing with debt.
Debt consolidation is a manageable debt relief program that provides you a way to pay off debts without juggling multiple payments. By taking out a loan and paying off all your debts at once, you can focus on just one loan repayment.
While it won’t reduce the amount of your debt, you may save money on your debts if the interest rate of the loan is lower than the average interest rate of all your outstanding debts. Consider a consolidation loan to help pay off debts owed.
Reasons to Consider Debt Consolidation
Combining all of your debts into one, monthly payment can be advantageous. Everyone’s personal financial situation will be different, but some of the advantages include:
- Reducing the stress of multiple debts
- Making monthly payments more affordable
- Possibly reducing interest rates
- Allowing payoff of debts sooner
- Minimizing pressure from creditors
- Improving your credit
The Different Types of Debt Consolidation
Taking out a consolidation loan isn’t the only option to consolidate your debts. Every individual’s financial situation is unique; therefore, not every solution will make sense for every circumstance. Our Licensed Insolvency Trustees will learn about your specific debts and finances to help you decide on the best solutions for consolidating credit. Options other than loans include:
Credit Card Balance Transfers
Transferring debt to a credit card designed to offer low rates for transfers can reduce your payments through promotional rates. These cards often offer a 0% rate during a promotional window, giving debtors anywhere from 6-18 months to make payments with no finance charges. This option should only be used for smaller debts that can be paid off within the promotional window.
Lines of Credit
You can apply for a line of credit at a bank or credit union to pay off debt. This is similar to a credit card in that you can borrow money to pay off debt up to your line of credit. Minimum payments on a line of credit or generally low. The negative side of these loans is that if you only make the minimum payment, you will never get out of debt.
Home Equity Borrowing
Using the equity in your home, you can refinance, take out a second mortgage, or apply for a home equity line of credit to pay off debts. This type of borrowing is attractive to many since, generally, borrowers qualify for a lower interest rate compared to other options.
Debt Management Plans
One option to consolidate debt into a single, manageable monthly payment, that does not involve borrowing, is to set up a debt management plan also known as a consumer proposal. If you don’t qualify with your bank for a consolidation loan, filing for a consumer proposal could be a great option for you.
LEARN WITH SMYTHE Secured vs. Unsecured Loans
Secured loans
The interest charges are generally lower on a secured loan. This is because borrowers offer up an asset that can be used as collateral.
If the borrower defaults on a payment, the lender may sell the asset to pay for the debt.
unsecured loans
Unsecured consolidation loans tend to have higher interest rates due to no asset being available for collateral.
If a borrower does not have an asset to offer as collateral, then the consolidation loan is unsecured.
Consolidation Without Borrowing
You might not even be aware that there are options for legal debt consolidation that do not require taking on more debt. Non-borrowing options in British Columbia include fling a consumer proposal, or considering a debt settlement plan.
Filing a Consumer Proposal
A consumer proposal is a formal offer made to your creditors to repay your debt. In the proposal, you usually settle your debt for less than the full amount you owe and repaying on a schedule that works best for you. After you complete the proposal, your debts are forgiven.
- Good for those with steady income
- Your assets cannot be touched
- Consolidates all your debt in monthly payments
- Helps avoid personal bankruptcy
- Filed by a Lincensed Insolvency Trustee
Debt Settlement Plan
A Debt Settlement Plan is typically facilitated by a debt or credit counsellor. They will review your financial situation with you and arrange a full-payment plan with your creditors for your debt that is eligible. They’ll also negotiate an interest freeze, if possible.
- Repay full debt usually without interest
- Fees include paying the credit counsellors
- Government debts (CRA debt, student loans) cannot be settled by DSP
- Impact to your credit will be the same as filing a Consumer Proposal
Choosing the Right Service
The ultimate goal for choosing debt consolidation is to provide an opportunity to pay off debt without incurring additional bills or hurting your credit score.
As with all of our insolvency services, we work closely with every client to make sure each one makes the best decisions for their financial situation. When deciding what debt consolidation service is right for you, keep these important tips in mind:
- Borrow from a reputable lender
- Read contracts closely for any hidden fees or charges
- Ensure the interest rate is lower than your current debts
- Make sure the monthly payment fits within your budget
- Be sure the loan can be paid off in 5 years
- Make sure there’s no penalty for early payoff
- Check if your credit score will improve if paid off on time
Meet With a Licensed Insolvency Trustee
All Licensed Insolvency Trustees at Smythe Insolvency are officers of the court dedicated to ensuring your rights and your creditors’ rights are maintained throughout the debt consolidation process in British Columbia.
When you choose to work with us, you can be sure that you’re well represented in all matters related to insolvency. We work directly with your creditors, stop the harassing phone calls, and reduce the amount of financial stress in your life. Contact us to schedule your free debt consolidation consultation today. With over 10 office locations in British Columbia, you’ll find a convenient location near you.
Learn about debt consolidation