When you are in debt, it seems like whatever the amount of money you owe is
just too much. The stress and pressure of paying your debts can become
overwhelming and you may begin if there are any debt consolidation services
that could help you. Before you consider a debt consolidation program ask
yourself these following questions:
Are you struggling to keep
up with your minimum monthly payments?
Are your present lenders
continuously increasing your interest rates?
Do your debts cause stress
and anxiety?
If you answer yes to any of these questions and you feel like you can no
longer control your credit card payments, then a credit card debt consolidation
program may be a viable option for you.
Debt consolidation loans in Canada can reduce many separate payments into a
single low interest monthly payment and can reduce your monthly interest payments.
An additional benefit is that you can usually improve your credit score because
you will be making consistent monthly payments; this also allows you to reduce
your overall level of debt.
Credit card debt consolidation is usually the first step in the process of
debt elimination and assists you in improving your money management skills. Debt
consolidation lenders may have reduced your immediate concerns, but your
financial concerns may not be over. Many debt consolidation companies do not
offer you the proper guidance on how to better manage your financial situation.
Therefore you need to look for a debt consolidation that provides a debt counseling
program in Canada.
Who should not consolidate?
Every persons situation is different; however there are some things to
consider before enrolling in a Canadian debt consolidation program:
Do you really need to
consolidate your loans?
Do you have the ability to
make the reduced payments?
Can a debt consolidation program
save you time, money or reduce debt?
If you think that debt consolidation can reduce your financial problems then
you should call one of our trained credit counsellors right away. They can help
you determine whether credit counselling is the best option for you.
Do I
Need Help?
Danger Signs of Credit Card Debt
Your credit cards have
reached the maximum limit out and you are only able to make minimum payment.
Failing to pay your credit card bills in full will result in higher
interest finance charges.
An increasing amount of
income goes to paying your credit card debts. Only 10 - 15% of your
disposable income should be spent on credit debt.
You are using one credit card
to pay off another credit card. This does not reduce your total credit
card debt. All you're doing is borrowing more money and increasing your
financing costs.
You are paying your credit
card bills with money that was meant to pay other bills.
Money is borrowed or credit
cards are being used to pay for items, which used to be bought with cash.
You are using your savings to
pay current bills.
Debt and
Loan Consolidation in Canada
The most
common solutions that most people think of when they have financial problems
are consolidation of loans and bankruptcy. Many people are not aware that each
of these options may bring new and sometimes more serious difficulties and
often they are only temporary solutions to their present problems. Some people
who acquire a debt consolidation loan in Canada find themselves in deeper debt
and in more financial trouble. Having all your debts combined into one payment
may make the payment process easier, but a consolidation of loans will not
decrease the amount of money you owe and you may be just turning unsecured debt
into secured debt.
There
are two types of consolidation loans, secured and unsecured loans.
A
secured loan is when "the borrower" promises to give "the
lender" property or other assets as collateral. If "the
borrower" is not able to make the payments on the loan, the lender has the
option to claim the assets. Many people use their home or automobile as
collateral to obtain a loan. If a costly hardship befalls you and your family,
and you are unable to make your loan payments, the bank will take away your
home or car. Canadian consumers who turn to debt consolidation loans for help
can sometimes encounter additional problems.
For
example, debt consolidation loans may have high hidden costs or fees and some
may require your home as collateral. The mortgage loan lender may not fully
explain the terms of the loan agreement and the borrowers may not even be aware
that there is a possibility that they can lose their home.
An
unsecured loan is not secured by any asset or collateral that creditors could
repossess, such as a house, cottage or automobile, if loan payments are not
made.
For
example, unsecured loans may include money you borrowed from a mortgage finance
company where you did not sign a security agreement, money borrowed from
friends or relatives, as well as certain educational loans, credit cards and
charge cards, telephone bills or accounting bills. Many unsecured loans also
have higher interest rates which reflect the higher level of risk and many
credit cards can charge as much as 30% interest in Canada.
Refinancing Your Home & Home Equity Lines of
Credit
Home
equity refinancing gives you a lump sum of money where your home is used as
collateral. Similarly, a home equity credit line is a form of revolving credit
in which your home also serves as collateral. Because a house is usually a
person’s largest asset, many homeowners only use home equity loans or lines of
credit for major expenses such as education or home improvements, and not for ongoing
daily expenses.
Many Canadian
financial lenders offer home refinancing and home equity lines of credit. By
using the equity built up in your home, you may be able to qualify for a
considerable amount of credit and/or a large loan. It is important to note,
many Canadian mortgage lenders require a home owner have at least 20% or more
equity in their home.
Before
making the decision to refinance your mortgage or take out a home equity line
of credit you should weigh carefully the risks against the benefits. A debt consolidation
program may be able to eliminate your debt within 3 to 5 years, versus a
secured loan which may take 15 years or more to pay off.
Home Equity Line Costs
Many of
the costs associated in acquiring a home equity line of credit are similar to
the charges you pay when you buy a home. For example:
There
may be a charge for a property assessment (appraising the value of your home).
An application fee, which may not be refunded if for any reason you are turned
down for credit. Other closing costs, including fees for attorneys, mortgage
preparation and filing, property, and insurance, as well as taxes. Some
mortgage lenders also charge annual membership or maintenance fees and
transaction fees every time you draw on the credit line. You may find that you
are paying hundreds of dollars to establish the plan. If you draw only a small
sum of money against your credit line, charges and closing costs could be very
high when compared to the amount of funds borrowed.
Unsecured Loans
An unsecured debt consolidation loan places none
of your personal possessions at risk, but an unsecured loan's interest rate is
usually higher than your present rate of interest. In the end, you may be
paying double or triple the amount in interest of your original debts or get
side tracked making payments for years longer.
Either
type of debt consolidation loan only places you deeper in debt, complicating
your financial difficulties, not solving them.
We get
calls from people telling us that getting a debt consolidation loan was the
final cause of their financial derailment. After they paid off their debts with
the loan, it was not long before the credit card charges were run up again.
Leaving them with both a consolidation loan payment and credit cards to repay.
Many consumers who obtain consolidation loans get back in debt and return
looking for yet another consolidation loan; never ending the cycle of debt and
never rebuilding their equity. Canadians of all education and income levels are
falling into this trap.
