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Call for a Fresh Financial Start
Call for a Fresh Financial Start

Wondering What Makes a Good Debt Consolidation Loan?

If you’re in a lot of debt, take a deep breath. Your situation can be extremely stressful, but there’s help available. Smythe Insolvency offers debt consolidation services for residents of British Columbia. You have options when it comes to getting out of debt. While bankruptcy is right for some, it isn’t always the best course of action. One alternative to bankruptcy is a debt consolidation loan. However, there are good and bad debt consolidation loans, and they aren’t ideal for everyone. Our experienced team is here to help you through these challenging financial times. We offer a variety of solutions based on your unique financial situation. We invite you to learn more about what debt consolidation is, how it works, the features a good loan should have, and when a debt consolidation loan is worth it and when it’s not. Contact us today to book a free consultation to find out if debt consolidation is right for you.

How Debt Consolidation Loans Work

Before determining if debt consolidation is right for you, you need to understand what a debt consolidation loan is and how it works. A debt consolidation loan combines multiple debts into a single loan with a single monthly payment. It’s often used for high-interest debt like credit cards. Some of the best reasons to obtain a debt consolidation loan are that you may have a lower monthly payment and a lower interest rate. Debt consolidation can help you reorganize multiple bills with different interest rates into one.

What to Look for in a Debt Consolidation Loan

A good debt consolidation loan should provide several benefits to help you pay off your debt faster or offer lower monthly payments that you can afford to pay each month. Either way, the intention is to improve your current financial situation. A good debt consolidation loan should have the following features:

  • Reputable Lender – Choose an established lender who has been in business for multiple years and has a successful track record with debt consolidation loans.
  • No Hidden Fees – Be sure you thoroughly read any contract for debt consolidation services before you sign it. There shouldn’t be any hidden fees or charges associated with your loan.
  • Lower Interest Rate – One of your main goals should be to lower your overall interest. The rate on your debt consolidation loan should be lower than the rate on your existing debt. Otherwise, you won’t be able to reduce your debt any faster than you currently are.
  • Affordable Payment – A debt consolidation loan can reduce your monthly payment, but it does not reduce the overall amount of debt you owe. Make sure your payments are affordable and work with your budget before you choose this option. Use a debt repayment calculator to help you.
  • Short Lifespan – You should be able to pay off your debt consolidation loan within five years without using other credit. If not, you may want to consider other options, such as a Consumer Proposal.
  • No Early Payoff Penalties – If your financial situation improves due to a new job or other income sources, you should be able to pay off your loan faster without being charged any penalties.
  • Improves Credit Score – Make sure your debt consolidation lender reports your loan to the major credit bureaus once you pay it off in time.

When Is Debt Consolidation a Smart Move?

Sometimes debt consolidation is a smart move, but other times it isn’t worth it. You should only consider debt consolidation if your total debt, excluding your mortgage, does not exceed 40% of your gross income, as most banks and credit unions will only allow you to borrow this much. Debt consolidation may also be smart if your credit is good enough to qualify for a 0% credit card or a low-interest debt consolidation loan. You should also have a plan in place to prevent running up debt again. Debt consolidation may not be a smart move if you’re overwhelmed by debt or have no hope of paying your debts off even with reduced payments. It also may not be worth the hassle if your debt is small, and you can pay it off within six months to a year and would only save a negligible amount with this option. Debt consolidation requires some research and may seem a bit confusing. A Licensed Insolvency Trustee can help walk you through all these considerations.

Schedule Your Free Debt Consolidation Consultation

Smythe Insolvency is here to help you improve your financial situation. We would be happy to provide you with a free debt consolidation consultation to determine if this type of loan is right for you. We offer trusted debt consolidation services in British Columbia. This option could help you reduce stress, reduce interest rates, and pay off your debts sooner. Contact us today to schedule your consultation.

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