If you are currently repaying multiple high-interest loans, you should consider consolidating them into a single loan with a much lower interest rate, or possibly no interest if you choose to file for a consumer proposal. With debt consolidation, your credit card debt, personal loans, line of credit and other unsecured debts are merged into a lump sum with a new, lower interest rate and a minimum payment that is convenient for you.
Many people have become debt-free by combining their loans, but rushing your decision can keep you from cutting the best deal. Here are a few things to consider before signing your new deal:
- The interest rate
Proposal consolidation allows you to get a better handle on your debt by potentially eliminating interest all together. With proposal consolidation, you pay back a percentage of what you owe and save yourself from paying high interest rates on credit card balances, for example.
Once you consolidate your debts into a single amount and agree on the interest rate and payments, you can begin to work toward living debt-free. Debt consolidation, or proposal consolidation, can be a great option for those with many high-interest credit cards.
- Duration of the loan
The idea of debt consolidation is to make the repayment of your loans manageable. Loans that drag on for 20 years or more aren’t the best option – which is why many people choose proposal consolidation, which lasts for five years or less depending on your financial situation. Instead of simply choosing a comfortable amount, try to request payments for as much as you can afford so you can be debt-free sooner.
- Avoid more credit cards
One of the best things about debt consolidation is that your credit cards get paid off when you take the new loan. This also means that you are now free to get new cards. This can be very tempting, especially when you consider the huge savings that debt consolidation gives you with regard to the extra amount you would have had to pay on the individual loans. Consolidating your debts should be seen as a fresh start to get your finances in order, rather than an opportunity to incur more debt.
- Watch out for the security
Depending on the lump sum amount, you may be required to risk one of your assets to secure the loan.
So, make sure you read the small print carefully before taking a debt consolidation loan. Also, seek the help of a financial counsellor to create a budget that balances your income with the loan repayment, your expenditure, savings goals and to help you figure out your best consolidation options.
Speak with a licensed insolvency trustee today to learn more about debt consolidation.