What is Debt Consolidation?

Debt Consolidation is a means of simplifying the repayment of your debts. If you owe money to a number of different creditors, this allows you to pool all your debts into one single debt resulting in you paying one payment instead of five or six payments to different creditors.

What are the advantages of Debt Consolidation?

Only one monthly payment instead of many payments.

1. This single payment assures that your debt will be paid on time.
2. Most often this single monthly payment will be lower than the total of the 5 or 6 other payments you were previously making.
3. The interest rate on the Debt Consolidation Loan will, in most cases, be significantly lower than the interest rate you were paying on the various other debts you had. This can be especially true if your other debts were credit cards where the interest rate can be 20% per annum or more.

What are the disadvantages of Debt Consolidation?

1. The fact that the single payment on your Debt Consolidation Loan is significantly lower than the monthly payments you were previously making to multiple creditors may tempt you to take on more credit card debt.
2. If you remortgage your home to consolidate your debts, you could lose your home if you take on additional credit card debt and can’t repay your Consolidation Loan.
3. Debt Consolidation often means that your debt will be extended for a greater period of time so although your payment and interest rate will likely be lower, it may take you years to repay your Debt Consolidation Loan.

Alternatives to Debt Consolidation

1. Borrow money from yourself.
   1. If you have money in savings accounts (Which you should) you can use some or all of this money to pay off or pay down your debts. You could also sell stocks, bonds or cash in your R.R.S.P funds if you have them.
2. Borrow money from family and friends. (Not recommended unless you have no alternative)
3. Sell some of your assets that you don’t need. (Cars, boats, recreational vehicles, household goods)

Remember a Debt Consolidation Loan can be a good solution if and only if, you:

• Have a high amount of debt that you are struggling with paying.
• Have a very high interest rate on that debt.
• Are considering borrowing more money at a high interest rate.

Debt Consolidation is not a good solution if:

• You are not fully committed to repaying your debt.
• You are tempted to use your freed up money to create more debt.

If you need advice or help in forming a solution to your debt, let us help you.