Here in Canada, there are several options that are used to consolidate a debt. It all depends on each person’s situation. What is good for one person may not be right for another. Each option will have pros and cons.
Some of the options include a home equity loan, a second mortgage, consolidate with your credit card, refinance a mortgage and several more. Consolidating using a debt consolidation loan is also an option, so let’s take a closer look at this.
1. Advantages
A debt consolidation loan does have a few advantages. This is an option where the finance company, credit union or the bank provides the money for you so that you are able to pay off the outstanding debts by bringing them together (consolidate) and making it one big loan. By doing so, there are advantages, namely:
- No confusion, as you only need to worry about one monthly payment.
- You get to save some money because the interest rate when you consolidate tends to be lower.
- Generally, you can pay the debt in a certain amount of time. This set amount of time is around two to five years generally.
- For this service, if fees are charged, they tend to be low.
2. Disadvantages
However, one must also be aware that there are also some disadvantages to a debt consolidation loan. These include:
- Some kind of security or collateral will be required.
- Your credit score must be relatively decent.
- Compared to a home equity loan, the interest rates tend to be higher.
- For unsecured debt consolidation loans, the interest rates may be quite high.
As far as unsecured debt consolidation loans are concerned, banks will generally not approve it, though occasionally, there are exceptions. For example, if you have a high net worth and a great credit score, then a bank may approve you for an unsecured debt consolidation loan. It also helps if there is a co-signer who also happens to have a high net worth and a very good credit score. Otherwise, banks will never approve these.
3. Likelihood Of Getting A Debt Consolidation Loan
There are several factors that play a part in your chances of getting a debt consolidation loan. For example, the bank may have a minimum requirement regarding your credit score. So, on your credit report, there should not be many negatives or late payments. You also have to earn enough income. The total of your minimum monthly debt payments must not be too high. If you can offer good security or collateral as well, then the bank may approve you. If you cannot fulfill these requirements, you may still get the loan if you can get a good co-signer.
You can always speak to a counsellor, your bank or the Credit Union to get some advice regarding your situation and your options when using a debt consolidation service. Remember to be as honest as possible. This will get you the best help. There is no point in getting the loan and struggling, or getting into deeper trouble. Credit counsellors can be a great source of advice, so speak to them today.
