Debt Consolidation Explained
So, what exactly is debt consolidation?
At it’s simplest, Debt Consolidation is a strategy to help Canadians manage their debt, by simplifying and streamlining the debt repayment process.
And how does that work? As the graphic above explains, it takes multiple debt sources, consolidates them, and converts them into a single debt payment. So, if you had Credit Card debt, a Line of Credit balance, Car loan installments, as well as a mortgage payment, debt consolidation will:
- Amalgamate those separate debts
- Consolidate them into a single payment
- Streamline the payments to those multiple creditors
- Lower the periodic (biweekly, monthly, etc.) payment amount
- Reduce your interest rate payable across your entire debt
In a single sentence: Debt consolidation = financial stress relief!
Monthly Credit Card bills are mostly paid on time. Sometimes you may miss a payment – but that’s okay, right? You make your mortgage payments as scheduled, but there are times where you request to skip a payment. And your car financier never fails to occasionally remind you if you’ve missed that biweekly loan installment – so you go online and pay it quickly. It’s all part of managing your finances!
So, if all’s working out well and good so far – why consolidate?
Statistics on Canadian consumers tell us that we are over-leveraged. And as we get even further extended into debt, it gets harder for individuals and families to juggle payment priorities. With so many payments due, at different times in the month, and to so many creditors, it’s only a matter of time before something falls through the cracks.
By taking on a single personal loan, against which all of your debts are consolidated, you’ll get:
- The benefit of a single payment: All of your dues – be it to the dentist, your Line of Credit lender, credit card issuer or the car dealership – are consolidated into a single payment. That means you spend less time juggling or worrying about whom to pay and when. You’ll never miss a payment!
- Saving on penalties and interest: When you missed that credit card payment last month, did you notice that you had to pay a whopping interest amount as well? Now that you’ll never miss a payment, those late charges and penalties are history!
- Lower interest rates: Because of their size and their network of financial partners, Debt consolidation services are able to offer personal loans at amazingly low rates. As a result, the interest you’ll pay on your personal loan will be far lower than what you pay to credit card companies or Line of Credit providers. Lower interest rates = more savings for you!
- Smaller monthly payments: The objective of using personal loans to consolidate debt is not just to streamline and simplify the payment process – but it also allows you to make smaller regular payments against your loan, instead of larger (uneven) payments against multiple outstanding amounts.
- No more creditor hassles: Now that your personal loan payment is being managed professionally by the debt consolidator, to ensure all of your other dues are paid-off in time, you’ll never receive any of those robocalls or payment reminders. Fewer “gentle reminders” = less stress for you and your family!
By consolidating your debt through a personal loan, you’ll also be able to take better charge of your own finances, while planning your family budget with greater certainty.
Why Get a Personal Loan Now?
The Bank of Canada (BoC) has hinted that there are multiple Interest rate hikes coming over the next year! Already, the BoC has raised its prime rates several times this year. From a low of 0.5% last July, the BoCs prime rate now sits at 1.75%. Analysts predict that there, are several more coming in 2019.
So, what does that mean for you, and how is that relevant to our discussions on using personal loans as a tool for debt consolidation?
Well, if you have several creditors charging you a variable interest – like Credit card payments, second mortgage and/or car loan installments – then with each BoC rate hike the amount of your payment going towards principal will decrease. Over time, even a single percentage rise in interest rates can mean hundreds (if not thousands!) of dollars more that you have to pay towards servicing your debt.
By locking in a personal loan now, while interest rates are lower, and using it to consolidate your other debts, you’ll be saving all of that money that you would otherwise have paid in higher interest costs.
With a personal loan through one of JustCompare’s partners, you can gain a personal loan of up to $50,000, you’ll not only get access to your loan quickly and effortlessly, but you’ll get a very competitive rate. With our partnered provider LoanConnect, everything is done online, and you could get approved literally in a matter of minutes!
This information is just our view and should be not be considered advice of any sorts.
From our experience and other professionals we partner and engage with, we work to find useful tips and information that would be important to share.
If you are someone that is looking for professional advice tailored to your circumstance, please contact a bank, financial advisor, or mortgage broker.