Canadian Debt Consolidation Pros and Cons
Canadian Debt Consolidation options are vast, especially in urban centres like Toronto. It seems that everywhere we turn there is an advertisement about debt consolidation.
What exactly is debt consolidation? This is an important question because while “technically” it involves making a single payment to deal with all of your debt, depending on the type of debt consolidation, it can result in endless payments and destruction of your credit.
Traditionally a debt consolidation included going to a bank or other lender, obtaining a loan, paying all of your debts in full and then making a single payment to a new creditor.
In the past few years different federal government programs have been introduced that provide immediate debt relief and involve making a single payment to a single company – but these debt consolidations do not involve paying off creditors in full. We call these “Debt Relief” debt consolidations.
Debt relief and debt consolidations are meant to be used if you have major financial problems. They involve freezing interest, reducing debt and making a single payment monthly that fits within your current budget. They also come with tough financial choices that include not honouring your agreements to your creditors and damaging your credit (if you haven’t already); this is an important consideration.
Credit counsellors provide similar types of “Debt relief” consolidation programs. Consolidation programs offered through credit counselling will damage your credit. Unlike programs that have been made available by the federal government these programs may freeze your interest but in most cases will not involve freezing your principal debt.
Traditional consolidation loans still exist, but are harder to come by. Most banks (if you qualify) will always offer a line of credit as a first debt consolidation option. These generally carry low interest rates, however they are like taking out a large credit card and are very challenging to pay off because of the monthly interest payments. If you have a lot of debt, the interest may represent a large amount of your minimum payments.
Many folks also use mortgage agents and mortgage brokers to deal with debt. This is also a good choice because the interest is low. Who you deal with to arrange your mortgage will determine the deal you get. To get the best deal it is imperative to deal with a broker who can handle all types of credit and financial circumstances. If you deal with a broker who primarily manages banks – you may find their attitude towards you change if you don’t qualify with the bank.
The best choice you can make is to have a strong relationship with a good financial consultant. Not a debt counsellor, not a bank, not a broker – a financial consultant. They will be able to look impartially at the state of your finances and help guide you through good financial choices that address your short term and long term financial goals.
For more information about Canadian Debt Consolidation pros and cons please visit www.debtcare.ca