How Debt Consolidation Can Help YouAug 01, 2017
Having debt can make you feel insecure, and if you have a few different debts that require attention, you might also feel a bit frazzled. Remembering payment due dates, amounts and juggling interest rates can be challenging, especially with other financial responsibilities to attend to. If you’re looking to get relief from the stress of managing your various types of debt, a debt consolidation loan may help.
How a debt consolidation loan works
A debt consolidation loan is offered through a bank. The benefit of the debt consolidation loan is that it may combine all of your unsecured debts (credit cards, payday loans, lines of credit) into one, with a lower interest rate for you.
This can help you keep your debts organized, with one monthly payment, rather than several different payments with different due dates and interest rates.
Once you apply for the loan, your bank will decide if you qualify by reviewing your history, your debt load, and assessing your risk. If you’re a candidate, they’ll offer you a loan with a specific interest rate. It’s important to ensure that you take a debt consolidation loan with a lower interest rate than what you’ve been paying on your debts—if it’s the same or higher, there isn’t much benefit to you.
Having a lower interest rate on your unsecured debt means that you can pay your debt off sooner by putting more money toward your principal. Or, if you’ve been having trouble saving money as you’ve been trying to reduce your debt, you could take the money you’re saving on interest each month and put it into savings.
It’s also important to have an emergency savings fund. If unexpected costs come up, like home repairs, a job loss, vehicle breakdowns, or medical costs, for example, having some cash on hand is important. If you can use your savings to cover costs, you can avoid taking on more debt.
A debt consolidation loan is just one option for debt relief. If you’re interested in learning more about your options, or think you may require a more formal debt solution like a consumer proposal, get in touch with a Licensed Insolvency Trustee to review all of your options.