Debt consolidation is a relief for many, especially when high levels of consumer debt put financial pressure on millions of Canadian households. Juggling multiple credit card, auto loan, and personal loan payments each month costs time and money. By consolidating debts into a single payment, you can reduce headaches and interest costs. This guide covers how using a loan for this purpose can restore financial simplicity.
Assess Your Current Debts
Consolidation begins by tallying your current outstanding debts, interest rates, and minimum payments. Account types may include:
- Credit cards
- Store cards
- Payday loans
- Car loans
- Personal/installment loans
- Medical bills
- Student loans
List each account with balances, interest rates, payment amounts, and payoff timelines. This overview shows your total debt obligations in one place.
Calculate Your Monthly Payments
Add up the minimum monthly payment required across all your debts. Avoid only paying minimums since this approach extends payoff timelines and increases interest costs. But tallying the total provides an idea of how much you currently pay out each month across multiple accounts. Consolidating can roll payments into one lower fixed monthly amount.
Consider Your Consolidation Options
There are two main debt consolidation approaches – balance transfer credit cards and debt consolidation loans. Balance transfer cards offer:
- 0% intro APR periods
- Opportunity to pay some debt off without interest
- Lower minimum payments
Meanwhile, consolidation loans provide:
- Fixed interest rates as low as 5%
- Single monthly loan payment
- Shorter payoff timeline
Weigh the pros and cons of each based on your specific debt scenario.
Pick Loans with Lower Rates
The biggest perk of a consolidation loan is securing a lower fixed interest rate than high-rate revolving accounts. This saves substantially on interest fees over time. Crunch numbers comparing potential consolidation loan rate quotes to your current weighted average rate across existing debts. Choose the loan with the lowest rate.
Understand It Lengthens Your Payoff Timeline
However, consolidating debts into a loan means paying off your balance over an extended 36-60 month time frame. Your payoff timeline gets longer than if you accelerated payments on current debts. Make sure you are comfortable with the loan duration.
Watch Out for Fees
Some lenders charge expensive origination or prepayment fees on debt consolidation loans. Avoid loans that penalize you for paying the balance off early or bury fees in the fine print. Read terms closely and clearly understand associated costs.
Consider Non-Profits and Credit Counseling
Non-profit debt management programs through accredited credit counseling agencies like Credit Canada offer debt consolidation assistance at low fees. They work on your behalf to secure reduced interest rates and repayments.
Consolidate Federal Student Loans
Special rules allow consolidating federal education loans into a Direct Consolidation Loan potentially lowering your interest rate. This streamlines multiple federal loans into one payment.
Make a Plan for Payoff
The bulk of consolidation benefits comes from paying off your loan early. Develop a accelerated payoff plan – like allocating tax refunds or bonuses toward your balance. Avoid extending your loan and dragging out interest charges.
Get Your Finances on Track
While debt consolidation provides short-term relief, real change comes from rethinking your spending habits long-term. Use credit counseling resources to build a budget, curb overspending, and take control of your finances for good.
We Make Debt Consolidation Simple
The debt specialists at Get Approved Canada help Canadians like you consolidate high-interest debts into more manageable payment plans. We make simplifying your finances easy through compassionate coaching and even consolidating some debts into loans at lower rates. Our team is dedicated to ensuring you understand every step of the process. With our expertise, you’re not just getting a service; you’re gaining a financial ally.