What Is Debt Consolidation and Why Is It Helpful?
Debt consolidation is defined to be a process of merging all present debts and mortgages into one single debt that the borrower now pays back through timely monthly payments. The debt consolidation program is offered by many financial institutions, both private and government regulated offering Canadian debt consolidation services.
The purpose of debt consolidation is to help the borrower who is entangled with multiple payments to be made to multiple lenders each month. This service allows them to make single payments each month which are then compensated to all the other lenders accordingly. The purpose is to help you learn how to control your debts now and in the future without putting you in a tricky situation.
You get a new private loan or apply for debt consolidation that comes with a new interest rate and payment plan. This means you no longer have to make several payments each month but rather direct your payments to one end only. Often the new lender will pay the loan on your behalf and you pay them back or will make monthly payments on your behalf as you send them to one institute. There are even debt consolidation loans for bad credit and can help you maintain your good credit score.
When Is Debt Consolidation a Good Idea?
A debt consolidation program works best when you begin to find it difficult to manage multiple payments each month with their rates and amounts. The idea is to streamline and organize your payments so that the lender as well as you do not undergo any tension or unforeseen financial pressure. Works best for someone who may have multiple high-interest debts and is having difficulty managing them all.
A tip to add here, in order for you to take benefit from Canadian debt consolidation program, you must have a high credit score so you can qualify for lower interest rates than the one you already settled for before. With a low credit score, the conditions are normally strict unless other factors go to your benefit and you are able to take benefit from debt consolidation in Ontario easily. A debt consolidation expert will guide you to be able to get a sound deal and keep you away from unsecured debt consolidation loans in Canada.
Learn How Debt Consolidation Works in Canada
If you are in the same boat with many lenders and are thinking to get yourself hooked on a debt consolidation program, then you may be able to use one of the many options available for it. You may even look for online debt consolidation loans Canada. Some methods to discuss are:
1. Consolidation Loan for All the Debts
A financial institute such as banks, offices or any mortgage agency is going to pay off all of your debts to your lenders and you will now pay back the loan to the new lender with a new interest rate and monthly payment conditions. You will now be making a single payment to the lender but with a new routine to follow. Stable monthly income, high credit score and a solid account statement will plead in your favor for a low-interest rate. However, in this situation, you will have to put up some property as collateral for your new lender. The interest rate may be as high as 30% but normally ranges between 7 to 12%.
2. HELOC or Refinance Mortgage
Another interesting approach to take is to use your home equity and qualify for a home equity loan. Your home becomes the collateral for the new lender who pays off the debt to the other lenders and you now pay back with new installments and conditions. It is also known as a second mortgage and often comes with multiple fees so that needs to be kept in mind as well. A trusted debt consolidation expert will ensure you know about all these details beforehand.
3. Credit Card
The credit card you have can come in handy for debt consolidation and will do wonders for your credit score if you make timely monthly payments. This is a risky option, and your debt may escalate if you miss out on any payments.
These are not all but some of the popular and easy choices to make when it comes to debt consolidation. You can enroll yourself in Canadian debt consolidation programs and learn how to control your debt in the future.
Bear in mind a debt consolidation loan is different from a debt consolidation program, one offers you to send the monthly payment to a third person and they are responsible to forward it to relevant lenders as per their due payment. The second way is to get a loan and pay off all the debt once and for all and be left with a new loan to pay back with new conditions.
How to Get Approved for a Debt Consolidation Loan
The approval criteria for Canadian debt consolidation loan are the same as that of a mortgage or loan. You need to have a stable source of income, a high credit score and collateral to support the lender. You can even have someone with a high credit score co-sign your application. This will help you get a debt consolidation loan with low-interest rates. It is important to put all the relevant documents together such as your account statement, your mortgage payment receipts and property-related papers.
This saves the time and rounds that you might have to make to the lenders. Canada debt consolidation loan is here to help those who might be entangled in multiple mortgage web and need assistance to recover from it. In no manner will it harm anyone who chooses to use it.
Requirements for Canadian Debt Consolidation
When it comes to listing the requirement for debt consolidation then one needs to have the following:
- Proof of income: Always tops the list and is a vital document for all types of financial services.
- Credit history: the lenders will go through your credit history and your credit report to have an idea about your financial handling.
- Financial stability: Your lender will always be interested to know what generates your income and how mortgages or debts impact your expenses. If you have property or a home to your name it adds to your profile.
- Equity: If you have sufficient home equity, you might as well put that to use with the lender.
It is not necessary that these are all the necessary requirements. If conditions set by the lender are tight, you might suffer more than you already are. So the matter of making the right decision is based entirely on your ability to make the right judgment under your respective financial conditions.
How Debt Consolidation Affects Your Credit Score?
Your credit score paints the true picture of your financial management and debt consolidation has an impact on your credit score. Initially, the impact is negative and the score takes a dip due to various reasons such as creating another account to consolidate debt or in the case of credit cards, the amount you need to transfer may be more than the allowed limit and hence leading to lower credit score.
But these changes are temporary and they improve over time. Once settled, the payments that you make and lower utilization of the card funds will help improve your credit score. So, in the long run, debt consolidation helps you have a good credit score at the end of the line. Having an expert with in-depth knowledge of debt consolidation will do wonders for you.
How to Get a Debt Consolidation Loan with Bad Credit
Bad credit debt consolidation is not an impossibility. It is doable and possible. But, an expert with the required knowledge of the domain will bring you better results than a newbie. If you wish to you may explore the option on your own but with bad debt, not many creditors agree to lend loan or debt consolidation services. Unless a mortgage broker is there to settle the matter between both or figure out a way around. If a creditor does agree, the conditions are often not feasible and often propose a high-interest rate. Bad credit may be ignored if the other factors are favorable such as account statements and payment records.
How Long Debt Consolidation Stays on Your Credit Report?
The debt consolidation stays on your credit record for almost 2 years. It may be more than that as well based entirely on your approach to the payment method and contract that you had. This will hurt your credit report however the damage is temporary and with time, the timelier payments you make the score improves. The presence on the credit report is well known by many that it stays for a short period and is not permanent. With the passage of time, as you will bridge the gap between what you owe and what is due; the score will improve itself.
How to Rebuild Credit After Debt Consolidation?
The very first thing to bear in mind is to keep an eye on your credit history and report from time to time and try maintaining or improving your credit score. A high credit score benefits you not just for a loan or mortgage but also in other areas of the financial world.
Your credit score is highly affected by the payments you make so even after your score takes a hit due to debt consolidation, give it time and rebuild it by making timely payments. The rest is your credit utilization which is how much of the available credit you use. What types of mortgage or loans you use are also a factor that can help you rebuild your credit score?
The benefit you get from learning about your credit score and what helps rebuild is you will be able to catch any errors or problems with it. Your payments, accounts and mailing addresses must be correct always.
What is The Best Debt Consolidation Company in Canada?
Debt consolidation is an option many people can use to get relief from their high-interest credit card bills and other debt.
But which company is the best to work with for consolidating debt in Canada?
That’s a question that has been asked by many people.
The best debt consolidation company for each individual depends on a number of factors, including the amount of debt, income, and expenses. Some companies provide relief through the restructuring of debts, while others offer assistance with paying off existing debt. If you’re searching for all-in-one debt solutions to handle all the operations necessary for a lasting and economical debt management plan, look no further than SN Mortgage.
Having a huge network of lenders, the SN Mortgage experts can break off a great deal between you and them. The extended circle of lenders allows multiple options that can be presented to the customer to choose from. The agents are experts in the rules and regulations of the mortgage and work hard to solve the financial conundrum for their customers.
Canadian debt consolidation is a very effective financial tool that can be used to take benefit in case of any problems with the multiple debts one may have to their name. A debt consolidation program is when you get the services of an experienced agent who is able to forward the payments to your creditors. A debt consolidation loan on the other end is you getting a new loan to pay off all the other loans and then you back the new loan from the beginning.
Debt consolidation may hurt your credit score but temporarily and this will remain on your credit report for at least 2 years or so. A good credit score and a stable source of income will land you a very good deal with your new lender with comparatively lower interest rates in comparison to all individual ones.
Frequently Asked Questions
Qualifying for debt consolidation is easy if you have the right guide beside you. A debt consolidation expert like SN mortgage broker can help you make a great deal with a lender and qualify for debt consolidation. You need to have a good credit score to be able to qualify for easy debt consolidation. In different circumstances, the conditions under which you get debt consolidation will become rather difficult. You need to have multiple mortgages or debt to your name and all of them can be consolidated into one.
You may get out of debt consolidation at any time you wish to in case you suddenly get your hands-on inheritance or any other type of money available for you to use. The opposite of this situation can be a sudden unemployment scenario or a medical emergency and you are no longer in a position to be able to make monthly payments. You can always opt to bail yourself out by using a debt consolidation loan. Debt consolidation loans are not the same as payday loans or any other type of debt-relief products.
An unsecured debt consolidation loan is taken to pay back all the debtors once and for all. The new loan is now paid back by the borrower with new conditions and interest rates. In the case of unsecured debt consolidation loans Canada, there is no collateral or guarantee that can be put with the lender to ensure that you will pay back the loan. The terms at which you get this loan normally come with a high-interest rate but at the same time, there is no claim on your property or home if you are unable to pay back the debt. How well or how flexible of a deal you get is based on your credit score and the amount of money you are in need of.
This is entirely based on the situation at your end. After debt consolidation, if you have a credit score that can be put to good use then there is no need to worry. Depending on your DTI (debt to income) ratio, you will still be able to nail a very good deal for the house. If your DTI is acceptable to lenders then you face no issue however, it is recommended to apply for a home mortgage after your debts are cleared off because you will then have 2 mortgages to handle. With sound financial planning, you will still be able to afford and plan for a house but might have to run some rough estimations to get a better picture. You can try our Mortgage calculator for a quick estimate of your monthly mortgage payments.