Debt Consolidation Canada

How Does the Debt Consolidation Process Work?

The recent tough economic times have been difficult for many Canadians. There are now a number of people who are finding it difficult to pay their monthly bills and loans. Debt consolidation, also referred to as ‘refinancing,’ is becoming a more common option for many Canadians. Debt consolidation is the process of taking several debts and replacing them as one debt. It is usually chosen when a person has too many debts with high interest rates that are too difficult to manage. They may be in a situation where creditors are constantly calling, they cannot make all of  their payments, lost their job,  have had a illness or accident causing a drop in income, combined interest rates are too high, and they want to avoid bankruptcy. Debt consolidation can result in lower payments, lower interest rates, easier budgeting, and avoiding bankruptcy.

To determine if debt consolidation is right for you, calculate your total monthly debt that includes credit cards, loans, mortgage, and lines of credit. Then, subtract your monthly income from your total debt. If your debt is larger than your total monthly income, you may want to consider debt consolidation.

Debt Consolidation Process

1.    Acquire a debt consolidation form from a bank or debt consolidation firm.

2.    Provide a monthly budget illustrating that you can repay the loan.

3.    Provide documentation showing that you make enough money to afford the payments. This can include any pay stubs.

4.    You must provide collateral against the loan such as a house or car, or acquire a co-signer.

5.    Trained and experienced financial counselors will review your financial information and application. They will work with your creditors to arrange reduced monthly payments, interest charges, and fees for your unsecured debt.

6.    In order to qualify, you must have an acceptable credit rating and enough income to show that you will be able to make the monthly loan payments.

7.    Once your application has been approved, creditors will be informed by mail about the debt consolidation agreement and asked to send all correspondence to the debt settlement company. The only other contact you should receive from creditors is an offer of settlement. The financial institution will pay off your creditor debts.

There are a number of benefits to consolidating your debts. The interest rate is much lower than the combined interest rate of all your other loans. This could possibly save you thousands of dollars. You will not have a bad credit rating like you would if you were to declare bankruptcy. Also, with bankruptcy, you may have to surrender some of your possessions to your trustee and you are required to keep detailed records of your income and expenses during the entire bankruptcy period.

With debt consolidation, all of your creditors will be paid in full. You will only have to make a single monthly payment to your financial institution, instead of making several monthly payments to many creditors. You have a fixed amount to pay over a specified period of time. This time period can be 1 year to 10 or more years.

When you follow all of the consolidator’s terms and conditions, the main advantage of debt consolidation over bankruptcy is that your credit rating should not be negatively affected. Before you decide which option is best for you, do your research, compare the options, and talk to a financial adviser. Just imagine how good it will feel to have all of your outstanding debts consolidated into one monthly payment.