In the ordinary course of life, many people find themselves with debts to finance, which at times can become tiring and frustrating. You might find yourself in a pit where you are supposed to finance three or even five loans every other month. The thing with these many seemingly small loans is that their interest rates are pretty high. The major reason as to the high cost of these loans is because they are unsecured.
In order to come out of the conundrum, you can approach a lending institution in Vancouver so as to get a bigger loan which will enable you to pay off all the small loans and hopefully leave you with some cash to do some project. Still, there are those who just prefer to sell off their small loans in exchange for one consolidated one because of the convenience associated therein. In other words, debt consolidation is the process whereby a person takes one big loan to pay off other smaller loans which they are financing.
Debt consolidation services are offered by a majority of banks and other lending institutions in Canada. In order to understand how the whole process works, you need to list all your debts on a piece of paper. Such debts would include credit cards, hospital bills, education loans, car loans and so on. The interest rates for all these loans will be different and this is why you need to consolidate them into one.
How does the debt consolidation work?
When you aggregate all the loans, you should then do an average of the interests pro rate. This might come to around $10,000 and the interest rate can be something like 16%. When you shop around, you will definitely find other loans of $10,000 offered by several banks. Some of these loans will be costly while others will be lower than your 16% average interest that you pay monthly on your loans. With thorough investigation and proper bargaining, you might end up with a single loan of $10,000 and an interest rate of 13%.
By taking a single loan which is 3% cheaper, you have saved yourself quite some money in the long run. However, you need to understand that many lenders will not consider consolidating debts for you if you don’t have any collateral to offer. Offering your home as collateral is not really bad; the repayments of the new loans will be lower and the interest rate will be lower. This leaves you with some breathing space.
Reasons why you should consider debt collection
- Making monthly payments using cheques can be at times tedious. You might even forget to make a payment depending on the number of loans you are servicing. With a single loan, you enjoy the convenience.
- A consolidated loan attracts a lower interest rate. This means that you will be able to get out of debt faster and comfortably.
- With many loans which attract high-interest rates, you risk defaulting any number of them. Defaulting means that your credit rating goes down. Knowing just how important credit rating is, you should do everything possible like consolidating your loans to safeguard or improve your rating.
- The use of assets is allowed in debt consolidation. This is why the consolidating loans are cheaper than the other type of loans. They also let you spread your loan hence giving you some breathing space.
Things to note before going for consolidation of your loans
Like a price tag on some orange juice can, the price tag on a loan is the interest rate plus any other cost that you will eventually have to fork out. While the market interest rate might be attractive, investigate and establish that it is the total cost that you are going to pay. Hidden charges might end up making the consolidated loan more expensive that your initial many loans.
Simplifying your debt payment should not be your main reason for debt consolidation. Use a debt calculator to establish the total cost you are going to pay on your loans before taking this consolidation journey.
Debt consolidation alone cannot work for you if you are looking for a way to get out of debt. You have to spend less, throw away your settled credit cards and live within your means. This will make your debt consolidation decision worth.
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