Should One Consider Debt Consolidation?
For people facing substantial debt, credit consolidation may be the best solution. This gives the debtor the ability to manage unmanageable debts by combining multiple monthly payments into one payment that fits better into their budget. Consumers who are carrying a high debt load and struggling to make their monthly payments on credit cards and other unsecured debts may benefit from credit consolidation.
Start by Talking to a Debt Counselor
Before considering debt consolidation you should contact a debt counselor to discuss your financial options. Debt consolidation is not a one-size-fits-all solution. There are many ways to approach and manage debt to get the best results for your individual situation, and a debt counselor can help you think through these options. You shouldn’t join a debt consolidation program without talking to a debt counselor first.
Consider a Debt Management Program
One possible low cost option is entering a debt management program through a non-profit credit counseling organization. When you enrol, a professionally trained credit counselor will contact your creditors, on your behalf, to negotiate a lower interest rate and reduce your minimum payments to something you can afford. Then, to alleviate any further stress, the credit counseling organization will combine all of your payments into one easy monthly payment, which you will send to them and they will send to your creditors. Some debt management programs even offer auto draft, which makes debt repayment hassle free.
With a debt management program, you will be paying less interest, which means more of your monthly payment will go towards the principal. This allows you to get out of debt much faster than if you were trying to do it on your own. Because of this, many of these debt management programs will advertise that they will save you thousands. They are not actually lowering the amount you owe, but they are lowering what you will pay by negotiating a lower interest rate for you.
Keep in mind that these services are not free. The company handling your debt has a staff to pay and offices to maintain, so they will charge a fee to cover these needs. The fee varies from company to company, so be sure to inquire about the cost before you apply for the program.
Debt Consolidation Loans
Another option to deal with unmanageable debt is to take out a debt consolidation loan, use it to pay off the total sum of all outstanding debts at once, and then just repay the loan monthly. Often the monthly payment on a debt consolidation loan is less than the combined monthly payments on your existing debts, which can make your debt more manageable. Keep in mind that you will be responsible for paying any service fees and interest, which may range from 5 to 18% of the loan itself depending on your circumstances and credit score.
Many debt consolidation loans require you to use some form of collateral, such as a house or car, to secure the loan, particularly if your credit score is low. This can be a great solution if you want to eliminate calls from creditors and improve your credit history quickly, but if you miss any payments you could be putting your home or car at risk. Also, if you add to your debt after taking out the debt consolidation loan, you will be face even more difficult money problems. The only way a debt consolidation loan will help is if you can stop adding to your debt.
If you are having problems managing your bills and debts each month, you will probably save money be enrolling in a credit consolidation program or taking out a debt consolidation loan. Many communities have low cost options to help you manage your budget more effectively in order to increase your financial stability and eliminate creditors’ harassing calls and letters while establishing a healthier credit history.
Amy Nutt is a freelance writer who specializes in providing great financial information for Canadians. When searching online for debt counseling or credit counseling, be sure to visit the resources available at Consolidated Credit; offering a variety of debt counseling services and financial planning tools to help Canadians get their debts under control.
Debt Consolidation FAQ:
Question: Are there any good debt consolidation service in Ontario, Canada that you recommend?
The ones that will not rip you off or ruin your credit score.
Answer: There is some good ones in Montreal and Toronto and they are non-profit . Go to Google and in the search bar put credit counselling/Canada and they are there.
Question: How much time will it take to recover your credit history after consolidation of consumer debt in Canada?
Answer: It will show on your credit bureau for 6 years.
Question: What exactly happens to your credit if you do debt consolidation?
I have $7,000 in debt and I have heard about debt consolidation. Does this negatively affect your credit rating? Do you get to choose how much you pay monthly or is there a set amount they make you pay? I live in Canada, if that matters.
Answer: The companies will negotiate with your credit card’s to work out the monthly payments, usually you can tell the debt consolidation firm how much you can pay per month and they try to get it to that amount.
My husband did it and it is on his credit record. It has effected his score negatively so places that just go by the numbers it will effect.
It can potentially effect your score more to not pay the credit card debt off so if you aren’t going to be able to do so, it might be worth the smaller hit.
Question: Debt consolidation?
Can anyone tell me if by consolidating all of my credit cards, a mark goes against my credit? Will it be hard to get credit cards again? I have never been late on payments, I just feel swamped with credit card payments. I am in Ontario Canada if it makes a difference.
Answer: You should really consider meeting with a credit counsellor. Find an agency near you that you can meet with a counsellor face to face. They can tell you how different types of consolidation might affect your credit. It really does depend on the type of consolidation as well as your own personal situation (credit score and debt accounts).
Question: Has anyone ever dealt with this debt consolidation firm before?
Has anyone ever dealt with the National Credit Counsellors Of Canada Inc. before? If so has your experience been good or bad; any feedback would be greatly appreciated.
Answer: When you meet with them, come with a prepared set of questions and review their contract. Shop and compare. Make sure you are getting the best deal for what you are looking for. There are legitimate businesses out there that will assist you with debt consolidation, but you need to ensure they will not overcharge you or create additional problems. Check with the Better Business Bureau to see if there had been any complaints made against them, as well as your provincial Consumer and Business Affairs Ministry to see if there had been prior issues before you choose to deal with them.
Question: Business debt consolidation?
Does anyone know somewhere in Alberta Canada that can help me consolidate my business debt (including already financed equipment) so that I have 1 payment instead of 3 like I already have? I would only like to know about ones that have a reasonable rate and no pay for a list type emails.
Answer: Consolidate your own, if you can. Most companies who do this for you will charge you way too much. Some may leave you with bad credit in the end.
Question: Will bad credit in the U.S. affect my credit in Canada?
I have considerable U.S. credit card debt and I am considering using a U.S. company to consolidate the debt. I live in Canada and have my home and all other assets in Canada. Does anyone know if ruining my credit in the U.S. will affect my credit in Canada?
Answer: Yes. You can’t get away with it. They will do a US credit check when you apply.
Question: What is a reputable agency for credit card consolidation?
I have about 13,000 in credit card debt. I am recently single and now carrying the household costs alone. I have ran up some debt and am having a hard time making the monthly payments, I am looking to consolidate before I ruin my credit with late payments. I am in Canada.
Answer: Look in your yellow pages under credit, there are several. Credit Counselling of Canada is one of them. If you own a home you might be able to get a bank loan to consolidate your debts.