Most people are threatened when they hear the words debt consolidation, maybe because it has the word “debt” in it. But if you’ll look closer and try to assess what it offers, you can use it to your advantage, especially if you’re drawn by the benefits of convenience and efficiency.

What is debt consolidation and how does it work? 

Debt Consolidation is an act of taking out a single loan to pay off your combined, existing debts on a monthly basis, at the lowest interest rate possible. This is a short-term financial solution that lessens your worries as you only have one debt to think about. By having fewer creditors to think about, you have lesser interest charges and can thereby save a little more money.

A debt consolidation loan can be obtained in many ways, such as a refinance, a private mortgage or even as a line of credit against your property.

What types of debt can be consolidated?

Consolidating your financial obligations has its benefits. For one, it enables you to keep up with your debt payments and be debt-free sooner than you‘ve planned. However, not all types of loans qualify for debt consolidation.

Consumer Loans

Consumer Loans are often called unsecured loans, where providing assets as any form of security is not compulsory. Credit cards are the best example of consumer loans. They give borrowers the access to funding their expenditures within a specified limit and allows them to pay off their debt monthly.

Retail store cards and gas cards can also be consolidated, since most of them are used with specific brands; however, these usually have higher interest charges.

Unsecured Loans and Lines of Credit

Unsecured loans and Lines of Credit are flexible loans that banks or financial institutions offer. They’re similar to credit cards, where a defined amount of money can be accessed, without having to pay the full amount at one time.

Why is debt consolidation advantageous?

Many people have faced a financial crisis at one point in their lives, forcing them to have multiple kinds of debt, with corresponding terms and interest rates. This is the primary reason why most debtors pursue debt consolidation. They prefer to allocate their resources and save money as they work on reducing their debts.

Other benefits that come with debt consolidation include:

Lower Interest Rates

Most unsecured debts have a higher cost of interest rates, which can significantly add to the debt you have to pay. With debt consolidation, you can get a loan that would help pay off your combined debts with a lower interest rate.

Lower Monthly Payment

A lower interest rate means lower monthly payments, resulting in a decrease in your monthly expenses and an increase in your liquidity. The monthly payment required when it comes to debt consolidation varies with the term of payment. It allows consumers to know the exact repayment method, thereby enabling easier financial planning and more opportunities to pay off the debt.

Easier Monitoring

Consolidating your debts into a single loan amount creates more manageable payment and easier monitoring. Being in control of your finances as you engage in a single monthly debt payment, helps clear your mind from stress and allows you to get into a better financial position.

Less Risk to Default on Payment

Considering debt consolidation as your financial solution will lessen your risk of defaulting on payments, since your debts are combined into one, making it easier to keep track of your paid and existing balances.

Improves Credit Score

Taking out a single loan to pay off older debts in full, improves your credit rating. Making consistent, on-time payments as you repay your new, consolidated loan, will help you improve your credit score and rebuild your credit history.

Can you consolidate bad debt?

Bad debts are expenses owed by a customer on credit, that are estimated to be uncollectible. The funds tied up to this transaction are therefore considered a loss for financial institutions. When the debtor (whether an individual borrower or business) declares bankruptcy or lacks cash flow due to poor management, bad debt follows.

Banks and companies usually profit by charging interest rates and late payment fees on credit cards and loans, especially when clients fail to comply with the imposed payment date. Having multiple debts and creditors are reasons why bad debts are incurred, making borrowers turn to debt counseling and debt consolidation.

Consolidating Your Debt

Daisy Raouph offers a myriad of services that’ll help you re-evaluate your refinancing options as you make progress with your financial situation. If you decide to engage in a more stable mode of payment, with a fixed rate and a more flexibility.

Is Debt Consolidation Right for You?, Debt Consolidation Ajax, Pickering, Durham Region, GTA, Ontario, Canada

Daisy Raouph, CLU, CHS, specializes in mortgage financing solutions and financial services. A Mortgage Broker and Financial Security Advisor with over 30 years of experience in financial services. Contact us today to review your mortgage financing options. We can help!