Do you remember those stress-free and debt-free days? Perhaps they were a long time ago, or you recently found yourself in over your head. No matter what happened, you are not alone. Today, most Canadians are living beyond their means, and it’s perfectly reflected in their household debt-to-income ratio.
According to a recent survey, Canada’s household debt is about 170% of disposable income. That means an average Canadian owes approximately $1.70 for each dollar they earn after tax. This is a record, up almost 100% from two decades ago.
Those who have found themselves in financial freefall come from different educational and economic backgrounds. They may have suffered professional setbacks, don’t understand the nuances associated with credit cards, or suffered personal tragedies. Either way, once you are deep in debt, paying it down can take years, not to mention thousands of dollars in interest. One of the ways to address your debt issues is debt consolidation in Ottawa.
What’s a debt consolidation plan?
Debt consolidation in Ottawa involves taking out one loan to pay off all small loans. According to the Government of Canada’s Office of Consumer Affairs, a debt consolidation loan (often a bank) allows you to repay all your creditors at once. That means you have a single monthly payment, often at a significantly lower interest rate than you may be paying currently. This will save you a considerable amount of money on interest fees and allow you to pay off your debt faster.
How does debt consolidation work?
With debt consolidation, you (borrower) essentially request a creditor to offer you a lump sum of money or a larger loan (consolidation loan) to pay all your debts. This new loan will have a much lower interest rate, which saves you thousands of dollars over the next few years you will be paying your debt consolidation loan.
Is debt consolidation in Ottawa a good idea?
More Canadians are using various tactics like debt relief programs, consumer proposals, and debt consolidation to get out of severe financial crisis instead of declaring bankruptcy. Debt consolidation is suitable for various types of debts such as credit card debt, consumer loans, payday loans from payday loan companies, public utilities, and other unsecured debts. However, not all types of debt can be combined into a single loan. For example, mortgage options cannot be included.
Debt consolidation strategies
There are different debt consolidation (secured and unsecured loans) solutions to combine your debts. These include:
- Line of credit
This type of loan can be secured by your property (home), or your lender (bank or a similar financial institution) can offer an unsecured line of credit if you have an excellent credit score and income. However, you may be required to pay a higher amount than the monthly minimum unless you want to take decades to pay off the loan.
- Home equity loan
A home equity loan is also known as a second mortgage. You can implement this debt consolidation strategy if you have a considerable amount of equity in your home. It also offers the lowest interest rates through a credit union or bank.
- Low-interest rate credit card loan
Suppose you have a good credit score, but a bank or credit union refuses to lend you a lump sum amount of money, you can use a low-interest credit card to pay off all small debts. Remember, you may be required to pay a higher amount than the monthly minimum to avoid taking decades to pay off the loan.
- Debt repayment program
A consumer proposal or debt repayment proposal could be an option for Canadians who don’t qualify for a huge debt consolidation loan from a bank and cannot make their monthly minimum payments. Debt repayment plans like these often eliminate interest and ensure that you pay off your debts within five years. A debt repayment program that allows combining all small debts into a single monthly payment isn’t for everyone. So, consult with an experienced financial advisor before you take this route.
- Debt consolation loans from a credit union or bank
This is a debt consolidation solution for Canadians with a decent credit history and credit score. Also, it would help if you had good collateral to offer your lender. It offers the best or favorable interest rates after lines of credit and mortgages.
- Debt consolidation loan from a financing company
Although the lending criteria for finance companies are not as strict as that of banks, interest rates can be as high as 50%. Remember, an interest that’s over 30% is likely to double your loan amount if you take five years to pay it off.
There are three basic debt relief options for Canadians in deep debt trouble. These include the consumer proposal process, personal bankruptcy, and debt consolidation. If you have a manageable debt level and an excellent credit rating (plus assets like good income and home), debt consolidation in Ottawa is a great option.
It is essential to understand your debt resolution options and get professional advice before you consolidate your debts or file for bankruptcy. Therefore, you may want to consult with a debt counselling expert who can help perform a confidential debt assessment, perhaps during the initial consultation, and figure out a repayment plan.