Debt Consolidation

If you want to consolidate your debt, the first step is to arrange a free, no-obligation consultation with one of our licensed professionals who will take the time to answer all of your questions, review the various debt consolidation options and explain how each option may affect you and your family.

• Is the person you are dealing with licensed?
• What is the cost?
• Are there any hidden charges or fees?
• What is the interest rate?
• Is the monthly payment affordable?
• How long is the payment term?
• Can the debt consolidation be paid-off early?
• Are there any early payment penalties?
• How does the debt consolidation affect your credit rating?

The primary goal of any debt consolidation strategy is to reduce or eliminate interest charges, and thereby increase the portion of your payments that are applied toward principal. By increasing the amount of principal repaid as a percentage of each payment you make your outstanding balances will come down quickly and you will get out of debt faster.

The two most common forms of debt consolidation are:

• Debt consolidation loan
• Consumer proposal

Debt consolidation loans are a popular debt settlement strategy. However, the biggest challenge for most people considering this option is their ability to qualify for the loan. To qualify for a debt consolidation loan, you need:

• An excellent credit rating
• Sufficient income to make the loan payments
• Assets to use as collateral (often required)
• A co-signer (often required)

In situations where a traditional debt consolidation loan is not feasible, either because of an inability to qualify or unaffordability of the repayment terms (payment amount and/or interest rate), a consumer proposal is a popular alternative

Like a debt consolidation loan, filing a consumer proposal consolidates debts into one monthly payment. However, consumer proposals have the following key advantages over debt consolidation loans:

• No interest – a consumer proposal does not lower interest, it eliminates interest
• Debt settlement – a consumer proposal settles your debts for pennies on the dollar
• Affordability – consumer proposal payments are based on your budget
• Qualification – no credit application is required to file a consumer proposal, and you can qualify for a consumer proposal regardless of your credit rating, assets or income without a co-signer

The three biggest factors that affect the affordability of debt consolidation payments are:

• Principal required – how much do you need to pay-off your debts?
• Interest rate and fees – what is your total cost of borrowing?
• Amortization period (term) of program – how many payments do you have to make?

The key to any successful debt consolidation is a payment that is affordable and works with your budget. If you can’t afford your debt consolidation loan payment you will have to do one of the following:

• Attempt to renegotiate the terms of your debt consolidation loan, ie: negotiate a lower interest rate and/or extend the amortization period
• Consider other debt consolidation options (consumer proposal)

For every insolvent debtor, consumer proposal payments will always be significantly lower than those required for a debt consolidation loan. This is because unlike debt consolidation loans that require you to repay the full amount owed plus interest, consumer proposals reduce (settle) the total amount owed and eliminate interest charges.

While debt consolidation loans can be unsecured (no collateral), most lenders will require some form of security. The most common security is a house or other real estate property. When real estate is used as collateral for a debt consolidation loan it will involve one or more of the following:

• Refinancing (increasing) existing first mortgage
• Adding or increasing a Home Equity Line of Credit (HELOC)
• Adding a second or third mortgage

The way in which debt consolidation affects your credit rating depends on how you choose to consolidate your debt.

If you consolidate your debt using a traditional debt consolidation loan it should not affect your credit rating. The only consequence of a debt consolidation loan is that it may impact your future borrowing capacity.

If you consolidate your debt using a consumer proposal, it will result in an R7 (bad) credit rating that will remain on your credit report for a period of three years after your proposal is completed.