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Why choose debt consolidation when you can reduce your debt, forever?
It may seem like a good idea to take out a new loan to consolidate other loans and credit card debts into one monthly payment. But it’s important to weigh up all your debt-relief options to see the true cost of that loan.
What is a debt consolidation loan?
Debt relief that can come with a catch
A debt consolidation loan involves taking out a loan, through a lender, to pay off all your debts at a fixed interest rate with fixed payments.
However convenient these loans sound, they’re not for everyone and can be hard to qualify for if your credit has already been damaged. They also usually involve higher interest rates and can lead to greater financial strain in the long run. We don’t provide loans, but we do help you with solutions to consolidate the debt you have.
Types of debt we help with
- Credit card debt
- Tax debt
- Student loans
- Personal loans
- Lines of credit
- Payday loans
Considerations
Is debt consolidation worth it?
Debt consolidation involves one loan to repay existing debts. If you have high-interest debts, a new loan with a lower interest rate can save you money. However, many people with a low credit score, or too much debt, only qualify for loans from high-interest lenders.
Involves high interest rates (well above prime)
Includes fees
Requires secured assets (such as a home or vehicle)
No option to reduce the debt you oweFor some people, consolidation loans can also make their financial situation worse. The loan lets you combine all your debts into a single monthly payment, making it easier to handle. However, the interest rate and additional fees can increase your overall debt, leaving your original debt unpaid.
How it works
Arranging a debt consolidation loan
Debt consolidation usually involves applying for a loan from one lender to pay off many debts from various lenders. There are six steps.
- Review your budget to ensure you can comfortably afford the monthly payments to avoid creating new debt problems.
- Complete the lender’s loan application, but be selective to avoid multiple credit inquiries that can reduce your credit score.
- Use the consolidation loan to pay off existing debts. Close old accounts to prevent running up balances again. Consult a LIT if you don’t qualify.
- Make timely loan payments and pay off the consolidation loan quickly to reduce interest charges and improve your credit score.
- Set up pre-authorized payments from your bank account to ensure timely payments and potentially save on interest, but check for pre-payment penalties.
- Compare debt consolidation providers to find the best loan terms. Once the loan is paid off, get written confirmation and check your credit reports for accuracy.
A debt consolidation loan isn’t always your best move
Debt consolidation loans can seem like a good option when you have a lot of debt. They offer a quick way to stop collection calls and combine your payments into one. Some lenders even provide these loans without a credit check. However, it’s important to consider all your options and know the long-term effects. Speak to a LIT and try our debt calculator to compare savings for different solutions.
You Pay:
$6,000
You Save:
$0
Consumer Proposal (0% Interest Rate)
You Pay
$6,000
You Save
$0
Debt Consolidation (12% Interest Rate)
You Pay
$8,008
Do Nothing (19% Interest Rate)
You Pay
$9,339
Eligibility
Wondering if you qualify?
Qualifying for a debt consolidation loan involves these considerations:
- You must only apply for unsecured debts like credit cards and lines of credit; you cannot apply to pay for your mortgage
- You must have good credit (without missed payments), or you may only be able to qualify for a higher-interest loan
- A lender will want to make sure that you aren’t taking on more debt than you can handle (your debt-to-income ratio)
Why Farber?
We believe that everyone can prosper
The debt you’re facing today is not forever. With more than 43 years of experience in Canadian debt relief, we’ve helped over 100,000 people just like you build a better relationship with money and put their debt behind them.
The truth about debt
Frequently asked questions
For more than 43 years, we’ve helped over 100,000 people get out of debt
We’ll meet to discuss your debt-relief options, guide you to the best solution, and assist you in building a better relationship with money. We’re here when you’re ready.