Substantial debt can feel like a death sentence. Many North Canadians feel overwhelmed by the amounts of money that they owe, worrying that they’ll never have their heads above water again. What many don’t realize is that there are options for getting out of debt, and there are companies that can help. In 2008, total consumer borrowing rocketed from $4.6 trillion in 1999 to $12.7 trillion. That’s a 176 percent increase. Since then, consumer debt has fallen by $1.4 trillion, an 11 percent decline, possibly thanks to help from some of those very businesses.
One of the major options offered by credit counseling agencies is debt consolidation. Many people who owe significant amounts of money find debt consolidation to be an attractive option. Deciding whether debt consolidation is right for you, however, is the first step. This article will provide a brief explanation of the options involved in debt consolidation and a few suggestions that can help you decide if you’re a good candidate.
What is Debt Consolidation?
Debt consolidation is exactly what it sounds like. Debts from various credit cards and lenders are transferred to one loan, so that payments only need to be paid to one agency instead of several. Reasons to consolidate debt might include securing a lower interest rate, securing a fixed interest rate, or simple the convenience of making payments to only one lender. After consolidation debt doesn’t decrease, but interest rates might be lower, resulting in lower required payments. There are a few options for consolidation, each of which has pros and cons.
- Refinancing Your Home
This option is only available to homeowners, and involves using the extra cash you can borrow over and above your current mortgage debt to pay off more expensive debts. The interest rates on home equity loans and refinances are typically significantly lower than credit card rates, and there is a possibility that you might be able to deduct the interest on home loans. However, placing your home on the line can be a risk, especially if you’re not sure that you can control your spending.
- Credit Card Consolidation
This is one of the easiest ways to consolidate, but requires a fair amount of forethought and research. Using a card with a lower interest rate to pay off debts means lower payments, but you need to be careful of teaser rates. Many credit card companies offer low introductory rates, which can be great if you think that you can make significant progress before the introductory rate expires. If not, you’ll have to transfer to another card with a low teaser rate, and the constant game of catch up has high stakes.
- Taking Out a Loan
Asking for a loan from a bank or credit union is an iffy proposition, especially for those with bad credit. It can be difficult for those who are already behind on payments to secure a loan, though it’s easier to go through a bank with which you are already a customer. Rates are better on secured loans, but that involves putting up your home or another major asset as collateral, a choice of which many borrowers are wary. Unsecured loans tend to have higher rates and are not recommended for the consolidation debt process.
For those looking into consolidation debt reduction options canada is home to a number of credit counseling agencies that can help. When looking to build better credit Canada residents need to remember, regardless of the consolidation debt options of which they take advantage, that its important to control spending in order to find success. If you think debt consolidation might be right for you, use of the many online debt consolidation calculators that can help you decide.