Do you want to consolidate your debts? Perhaps the better question is do you need to consolidate your debts?
Why Consolidate Your Debts?
There are three main reasons why people choose debt consolidation:
- To consolidate several debt payments into one single amount. Often when people have numerous debts, whether it is a number of credit cards or a number of payday loans, they lose track of exactly how much debt they have and when to make their payments.
- To arrange for a lower monthly payment than you were paying before. This can mean the difference between affordable debt payments and missed debt payments.
- Alternatively, you can keep your payment as high as before but because your interest costs are lower you will be able to pay off your debts that much sooner.
The important factor is, that if you consolidate, that you do not go back to using all of your available credit again.
When Is It Time To Consolidate?
If you are struggling to make your minimum payments, and are not reducing the principal on your debts then it is time to take back control. If you are missing payments on a regular basis because you have too many debts, or are using one form of credit to pay off another, it’s time to deal with your debt.
How to Consolidate Your Debts
The best way to consolidate your debt is to approach your banker and get a consolidation loan. There are two factors that you need to be aware of. First your banker will look at your debt to income ratio. If you want to be approved for a consolidation loan, in addition to having good credit, they will want to know that you spend no more than forty per cent (40%) of your gross income on debt repayment. That includes your housing costs, borrowing on a vehicle and the other credit. If your debt is substantial, they may also ask if you have security to back up the loan. They normally are looking for equity in real estate which may mean taking out a second mortgage on your home if you can.
If you do not qualify for bank financing there may be other ways to consolidate your debt into one payment, but you need to be careful how you go about this.
There are people who advertise that they can consolidate your debt or negotiate a small settlement and have your debt paid in full. You need to know what the costs involved are, what the entire procedure is and if you are protected against a creditor taking you to court to settle the debt.
Another option is to file a consumer proposal. All of your unsecured debts will be consolidated in your proposal. You are informed of all the costs up front, creditors cannot take legal action and you will have a payment that you can afford.
If you have several debts and are looking for a way out, call Hoyes Michalos at 310-PLAN and or email us to book a free consultation. We can help you look at all your debt consolidation options and help you choose the one that makes the most financial sense for you.