Debt Consolidation Loan

Top 9 Debt Consolidation Loan Options In Canada

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Canada’s debt woes affect a great number of households, with people struggling to make ends meet despite having low-paying jobs and little outside income. When there is so much debt to pay off, it can become difficult for Canadians to deal with the stress associated with this burden. This is particularly true if the debt includes high-interest credit cards. The best thing people in this situation can do to alleviate their financial stress is to consolidate high-interest debts into lower interest loans. Debt consolidation loan are the best way for the citizens of Canada to take control over their debts. It involves combining the debts of two or more people into a single loan with a single monthly payment and is the ideal answer to this financial dilemma.

If you are struggling to keep up with your monthly payments and don’t have any savings, there are various debt consolidation methods that can help alleviate your financial problems. Some of these include consolidating your debts with a low-interest loan or entering into a debt management program. There are several options available to help Canadians fix their finances, but it is important to find the right one for you as every approach has its own pros and cons.

Advantages – 

There are many reasons why people would want to consolidate high-interest debt. The advantages of taking out such a loan are many:

  1. The interest rate on these loans are extremely low, making them more affordable.
  2. The amount of the loan will be reduced and the monthly payment will be lowered because it is a consolidation loan.
  3. If you have high-interest debts, a debt consolidation loan can be your best option because the new structure can help you pay off those debts much faster. 
  4. If you have a high-interest loan and an unsecured personal loan, the debt consolidation loan can help you reduce the amount of interest that you would have to pay to your creditors.

Disadvantages – 

  1. It does not help you get rid of all the debt. 
  2. The interest rate on these loans are usually high in some cases. 
  3. Even if your creditors agree to lower your interest rate, the new consolidation loan will still be more expensive than your old one.
  4. There is no guarantee that the creditor will approve of your consolidating your debts.

Alternatives of Debt Consolidation Loan 

If you decide to go for a loan for debt consolidation, there are several options that you can choose from. It is important to note that these loans are of different types and serve different purposes.

The best type of loan for you will depend on your financial situation, and here is a list of the top choices: 

  • Debt Management Program 

Debt management programs are ideal for individuals who have a good credit score and can afford to pay their debt off through the consolidation program. In this approach, the creditor agrees to reduce your interest rate in return for you signing up with a debt management company. This company will then negotiate with all your creditors and agree on one new payment plan for you. The downside of this approach is that the creditors will not agree to reduce all your interest rates and might even raise some of them.

  • Debt Settlement – 

If your credit score is lower than 700, Debt Settlement might be the best option for you. This entails negotiating with your creditors to negotiate a settlement agreement with them to reduce the amount of interest from high-interest loans. When you have agreed with creditors on this plan, the debt settlement company will negotiate with all your creditors simultaneously and reduce their interest rates as well.

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  • Credit Counseling – 

Credit counseling is a program through which your creditors agree to reduce your interest rate and lower the amount you need to pay them. In this approach, a debt counselor will reach out to all of your creditors and ask them if they would be interested in lowering their rates in return for you making payments on time. However, it is important to note that most creditors will not agree to lower their rates.

  • Bankruptcy – 

People struggling with debts are often tempted to file for bankruptcy, but this has several negative effects. First, you have to deal with the stigma associated with the filing, and second, you will not be able to get a loan from any institution for up to 10 years. Third, if you file for bankruptcy, your creditors will try to take away all of your assets and even sue you. This approach has many risks and should only be used as a last resort. 

  • Home Equity Line of Credit (HELOC) – 

A HELOC is a type of unsecured debt consolidation loan in which you borrow against your home equity. The money can be used for paying debt or saving money. However, you must pay interest on the HELOC, and if you use the credit line to pay off high-interest loans, you will lose part of your equity in your home. 

HELOC

 

Why a HELOC? – If you are in need of debt consolidation, a Home Equity Line of Credit might be the best option for you. This is because it offers you complete flexibility and will let you decide how to use the money that you borrow against your house. With a HELOC, there will be no credit checks. All that is needed to get one is proof that your home is paid for and your income.

  • Bank Loan – 

If you have a good credit score and a low monthly payment requirement, bank loans are an option that would work for you. This approach will put you under a debt consolidation loan obligation and allow you to pay off your debts easily. If you have a good credit score and high-interest debts, paying off your bills through consolidation will be beneficial. This approach will allow you to pay off the minimum payments while improving your credit score.

  • Auto Title Loan – 

If you need a car, but have bad credit, this is also a way to get it. The auto loan can be used for paying off all kinds of high-interest loans as well. However, before applying for an auto loan, be sure that you will be able to make the payments on time without falling back into debt once again. However, you must be very careful in choosing this option as there are many companies offering these loans. But still, there are some top companies like Canadian Cash Solutions that will help you get loans at lower rates and without any credit checks. 

  • Payday Loans – 

If you need cash the most, this is the best choice for you. With this approach, you will get a short-term loan that comes with a high-interest rate, and if you are not able to pay off your loan on time, borrowers have to deal with several fees. If you take out a payday loan, it is important that you make all the payments on time to avoid incurring additional fees.

  • Refinance of your Mortgage – 

Refinancing your debt can be one of the best options for borrowers struggling with debt. With this approach, your interest rate will be lowered while you will receive a lower interest rate on your mortgage. The downside of this approach is that the lender might not give you the money immediately and instead ask for a few more months before they will advance funds to you. 

Final Words – 

Choosing a debt consolidation loan is an important decision that will affect your finances for the years to come. It is important to consider all the options of a debt consolidation loan and select the one that fits you best. However, it is also vital to note that there are many companies out there that will offer you loans with high interest rates but no benefits for you besides easing your monthly payments. You must be very careful in selecting what company offers you a loan as not all of them are reliable and can end up costing you in more ways than one.

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