Get loans to help consolidate debt
Consolidation refers to the fusion, combination or unification of a certain number of objects or beings into a singular entity. Payday loan consolidation has a similar meaning when it comes to paying off your payday loans. Most of the time, not all individual debts that borrowers have difficulty managing, but the amount they have. Having so many payday loans spread over several lenders and businesses can make a regular payment schedule difficult to maintain.
Thus, borrowers wanting to reduce their debt will often head to consolidationnow.com and collect their loans (or consolidate them) in order to pay them back faster.
We have listed six of the most common forms of consolidation available to Canadian consumers. However, be aware that each consolidation option has advantages and disadvantages. For this reason, it is important to make your decision based on your specific needs.
Debt consolidation loans
The first option towards which many borrowers are turning is the debt consolidation loan. Because of its simplicity, with a debt consolidation loan, the borrower will attempt to repay several debts using a single loan. Debt consolidation loans are most often contracted from primary lenders, such as banks, cooperatives or other traditional financial institutions. As with any type of loan, potential borrowers must go through an approval process, in which their financial health will be examined. Some typical aspects examined are credit rating, assets and gross monthly income. Once approved, all eligible debts, such as credit card debt, auto loan payments, etc., can be repaid (some loans, such as mortgages, are generally not eligible for a consolidation loan ). The borrower then simply has to make a monthly payment to his main lender, until he has no more debts.
- Consolidation loans generally have lower interest rates than most other credit products, which can save you money in the future.
- You will have a better idea of when your debt will be paid in full. It is common that it is between 2 and 5 years, depending on your level of debt.
- Having multiple debts and bills can lead to a scrambled financial lifestyle, possibly resulting in late or missed payments. Missed payments will damage your credit rating. A single debt consolidation loan will probably be easier to manage, which will help you maintain a strong credit rating.
- These loans are not always easy to approve. Potential borrowers often need to have a good credit rating, a reliable source of income, high net worth and assets to offer as collateral.
- Unsecured consolidation loans (no collateral at issue) have higher interest rates than secured consolidation loans.
- Interest rates are generally higher than net loans (see below).
How to increase your chances of approval
As mentioned, debt consolidation loans, although they provide a relatively simple solution to your debt problems, are not easy to acquire. So, if you have decided that a consolidation loan is right for you, but your credit rating, assets (if any) and your income alone are not enough, you can also try to get your loan signed by a friend or a friend. member of your family. If your co-signer has good credit and high net worth, your chances of getting approval should increase.
Home Equity Loans
Also under the name of mortgage refinancing or second mortgage, borrowers can choose another way to use their net worth to obtain a loan. Similar to a consolidation loan, a lender will grant a loan to a qualified borrower to repay other debts. However, in this case, the loan will be deducted from the equity in the home, money they have already paid for their mortgage. Their house will then serve as collateral in case of default of the borrower with his payments.
- Interest rates for home equity loans are generally lower than those for consolidation loans
- Most lenders are lenient about the payment schedule, which means that you can simply increase your mortgage amortization period and then focus your efforts on your other loan payments.
- You must have enough net equity to repay all your debts.
- The home equity loan is not free. You will have to pay a number of different fees, such as an assessment, legal documents and the application itself.
- Some lenders, including banks, do not allow you to borrow on the equity of your home if you do not have enough. In fact, your loan may not be approved if you have less than $ 10,000 of equity to offer.
Line of credit
A line of credit works the same way as a credit card, except that you borrow money directly from your bank rather than from the credit card company and use a debit card instead a credit card.
You can then borrow money up to a certain amount (negotiate with your lender), which you can then use to pay off your debts. From that point on, you’ll just have to repay your line of credit in affordable monthly installments.
- Depending on your lender, lines of credit can also offer some of the lowest possible interest rates. Because of their minimum monthly payments, you will be free to repay the bank in small installments.
- Minimum monthly payments associated with lines of credit can also be expensive. If you do not manage your monthly payments correctly, the length of your payment period, as well as your floating interest rate, could lengthen your debt for years. You could ultimately pay more with your line of credit than if you had all your other debts combined. As mentioned, interest rates associated with lines of credit are generally “variable”, which means that they fluctuate with the Bank of Canada’s prime rate. So, if the Bank’s prime rate goes up, your interest rate and your minimum monthly payments go hand in hand. Your interest rate could then become more expensive than that of most credit cards.
Credit card with balance transfer
The next option is to use a credit card with balance transfer to consolidate your debts. When multiple debts spread over multiple credit cards become too difficult to manage, another option chosen by many borrowers is to transfer these multiple debts to a single “balance transfer” credit card. These cards can be attractive because they often represent very low interest rates, sometimes 0%, for new customers during a limited promotional period. Thus, with a credit card with balance transfer, you can transfer all your debts on a single card, then you simply have a credit card bill to manage, which you can repay gradually.
- Similar to a debt consolidation loan, all your debts will be combined into a total debt. This can make your debt easier to manage. You can pay as you go, with the money you have (as long as you meet at least the minimum monthly payments), and the following month, you may be able to repay $ 1000 more to your total bill.
- As mentioned, balance transfer credit cards often have a very low interest rate for a promotional period, which varies according to the card’s specifications. If you manage to pay off all your debts during this period, you could save a lot of money later.
- Again, doing only the minimum monthly payments could put you in more debt. If you are unable to pay your entire balance every month, your debt could be stretched for years and cost hundreds or even thousands of dollars in interest.
- Depending on the amount of debt you need to consolidate, you may not be able to get approved for a credit transfer credit card at a low interest rate.
- The transfer of your balance on one of these cards is not free. Fees will probably be charged for this service, usually between 1% and 5% of the amount of debt you transfer. For example, if you transfer $ 10,000 worth of credit card debt and the fee is 5%, you will have to pay a $ 500 fee.
- Once the promotional period is over, the interest rate on the card will increase. So if you have not been able to pay all of your debt on time, you could pay as much interest as if you were using your regular cards or more. This can cost you even more money in the long run.
- You will likely have to pay a different standard interest rate (sometimes 19.99%) for any new purchases you add to your balance transfer card before you have paid off your original debt. Even if you continue to make payments below the total amount of the debt, these payments will only be used for the original debt. This means that you will continue to accrue interest on these new purchases until you can pay all of your debt, which could take several years.
Debt management programs
Similar to a debt consolidation loan, integrating a debt management program means that instead of having multiple debts with multiple payment dates, you would only make one monthly payment until all your debts are refunded. However, rather than making this payment through your bank, you will be working alongside a licensed credit counselor, who will contact your creditors to allow you to negotiate a payment plan. Debt management plans are common among borrowers who are struggling to repay their credit card debt.
- Credit counselors will negotiate with your creditors for a lower interest rate.
- Nonprofit organizations also offer free education programs in credit and budgeting.
- In the case of credit card debt, borrowers are generally released from their debts at 2-5 years (the maximum term of most DMPs is 5 years).
- Once your debts are fully paid, the DMP information will be removed from your credit report after 2 to 3 years (depending on the credit bureau).
- Creditors must accept a debt management program before they can start
- For-profit credit counselors often charge high service fees.
- Once your DMP is complete, your credit rating will continue to be affected for 2 additional years.
Consumer proposals are legally binding procedures, regulated by the federal government. When filing a consumer proposal, this means that the borrower has a very large amount of debt that he has no chance of fully paying back. In fact, if you are a borrower and a consumer proposal is your only option, avoid declaring bankruptcy, it most likely means you do not have access to any other form of consolidation. In this case, you will need to hire a licensed insolvency trustee, who will negotiate with your creditors to reimburse a portion of what you owe (usually at least 50%) or extend the time period in which you must pay your full debt. Once the proposal is accepted, all actions brought against you by creditors and collection agencies will cease.
- You may be able to consolidate your debts to less than the actual amount.
- Consumer proposals are irrelevant.
- If accepted, a consumer proposal allows you to avoid bankruptcy.
- You can not have more than $ 250,000 in debt to qualify.
- Consumer proposals are not free. You will have to pay a valuation and deposit fee (about $ 1500). Once the proposal is accepted, you will also be billed throughout the payment process for the services provided by the custodian.
- Not all creditors will accept the consumer proposal. In fact, if creditors holding at least half of your debt do not accept it, the proposal will not be approved and you will have no choice but to declare bankruptcy.
- If you can not make your regular payments, your consumer proposal will fail and you will not be allowed to apply for another proposal (usually after 3 missed payments). This could mean that you will eventually have to declare bankruptcy.
- Your credit rating will be negatively affected throughout the consumer proposal process. Once the proposal is complete, a notice will appear in your credit report for three years. If your opinion lasts 5 years (maximum allowed) and the credit notice appears for 3 years, your credit could suffer for 8 years.
Choose the right consolidation option for your financial situation
As with any important financial decision you must make, choosing the right debt consolidation option requires sound planning. Since each choice has its advantages and disadvantages, it is best not to skimp on your research. If you do not know which form of consolidation is best for you, try talking to a professional. Ask for help from a financial advisor or credit counselor for any additional information you may need. The faster your creditors are reimbursed, the sooner you can get your finances back on track.