The majority of Canadian debt holders are not just dealing with a single source of debt. Multiple sources, each with their own terms and interest rates, are often part of our daily lives. This can mean everything from (a couple of different) credit cards, to student loans, mortgages, auto loans, and more depending on the circumstances.
All of these conflicting and competing debt sources can be much harder to manage than just a single payment would be. For one, the interest on all these sources adds up with frightening speed. Furthermore, allocating some funds toward eliminating one source might mean that you risk not being able to pay down another. And finally, any payments that you may miss are subject to their own particular penalties, which will also end up stacking higher and higher. It’s a rough situation.
Debt consolidation is a financial strategy designed to combat these pressures and make it easier for debtors to pay down what they owe without worrying about juggling rates, different schedules, multiple penalties, and an array of other challenges.
In debt consolidation, you take out a new loan to pay out a number of smaller, existing loans. This may sound counterintuitive at first – why add yet another loan to your debt burden? But in practice it is fairly simple. The company lending you the money for your consolidation loan either uses the funds to pay out the debts you jointly agree will be paid off, or they deposit the funds into your bank account, where it becomes your responsibility to pay out the debts or bills you wish to consolidate.
What does that mean for you? In short: one payment. One rate. Sounds easy, right? The interest rate you pay on a consolidation loan may be lower than your combined interest on the group of loans it is helping to pay off, but it does not necessarily mean you can start being freewheeling with your finances. The consolidation strategy only really works if you keep on finding ways to spend less and budget smart so you don’t continue to add or re-accumulate debt on top of what you’ve decided to consolidate.
So, how do you get a consolidation loan? The first thing you should do is talk to an advisor to see whether consolidating your debts will make sense, by which we mean, will it save you money to consolidate instead of taking aim at one debt source at a time? Once this is decided, you can attempt to get a loan from a bank or credit union to consolidate your debts, or turn to private firms (like Progressa!) for help with consolidating. Should you need another option, you can speak with a professional Credit Counsellor to see whether you qualify for a debt management program or orderly payment of debts program (depending on your province).
Getting free of your debts might be as simple as putting them together – making your life easier and letting you focus on making the lifestyle changes and improvements that will propel you to the next step of your financial future.