Nowadays, Canadians are living primarily on borrowed money. It’s the way of the world. Sometimes, though, that debt can get a little overwhelming, especially when it is coming from multiple different sources. Debt consolidation services are an excellent step to take for people in need of a more tidy debt profile. Debt consolidation essentially allows people to keep their debt in one place, instead of trying to pay off minimum payments to multiple creditors. Many people don’t even realize debt consolidation is an option, let alone how it works.
1. What kind of debts can be consolidated?
Debt consolidation is most commonly used to consolidate high-interest credit cards. These are the types of debts people generally have a difficult time paying down, especially if they have multiple cards. Most types of debt that are included in debt consolidation loans are unsecured debts such as credit cards, non-government student loans, and bills. Credit cards that can be consolidated do include both regular credit cards and retail store credit cards.
2. What kinds of consolidation options are there?
There are many different ways in which a debtor could go about having his or her debt consolidated. One such way is to apply for a debt consolidation loan. This is essentially where a new loan is created which acquires all of the other loans. Another method is to use the equity on one’s home, so a home equity loan, refinancing a mortgage, or taking out a second mortgage are three options for people who own a home and are able to use it for debt consolidation. Debtors can also consolidate their debts using a line of credit or a credit card.
3. Why is debt consolidation a good option?
When people have a lot of debt from many different sources, their income gets leeched out in a million different directions trying to pay minimum payments and keep up with what needs to be paid and when. It is an incredibly stressful situation to be in. But debt consolidation allows these people to put most of their debts in one place, and make payments of a specific amount at given intervals in order to lower their debt.
Debt consolidation loans also often provide debtors with a lower interest rate than many of their current creditors are likely offering. Paying high amounts of interest on credit is like flushing money down the toilet.
4. Will debt consolidation affect a debtor’s credit rating?
Debt consolidation does not affect a debtor’s credit rating. It can actually help improve a person’s credit, since they may have an easier time managing monthly payments. The only reason a person’s credit rating would go down after consolidating their debt would be if they were not making their payments on time which is, ultimately, not actually the fault of the debt consolidation.
5. Can a debtor be approved for a debt consolidation loan with bad credit?
Although credit rating may play into the approval process of debt consolidation, there is a lot of focus on the person’s ability to pay back that loan. Calculations based on what that person’s monthly payments are and what their income is will likely be major in the deciding factor in whether or not they are approved for the loan. Debtors with bad credit, however, may have to pay higher interest rates on their loan based on their credit score.
That’s also not to say that every lender will jump to accept a debt consolidation request from debtors with poor credit. People with poor credit who are looking to consolidate their debt may need to speak with multiple lenders before they find one who will accept their request.