Popular Debt Consolidation Loan Options in Canada

There are so many debt consolidation options in Canada. There are about 8 that are available for everyone with their own sets of pros and cons depending on someone’s needs. In today’s article, we will talk about the most popular ones especially for individuals who are self-employed or may have a less-than-stellar credit score.

Use a Debt Consolidation Loan to Take Care of Debt

A debt consolidation loan is when money is given by a finance company, a bank, or a credit union as a loan to someone so that person can pay off outstanding debts and ‘consolidate’ or ‘combine’ them together as one big loan.

Below are advantages of debt consolidation loans:

  • Having only 1 monthly payment to pay
  • Having a set time of typically 2 to 5 years to pay the loan
  • Low fees compared to other loans

The interest rates for debt consolidation loans are usually negligible if via a credit union or a bank, but that is dependent on someone’s credit score, net worth, and if there is collateral. They usually take any good asset that they can sell if the borrower fails to pay the loan. Banks usually charge interest rates of between 7% to 12% while finance companies usually charge more than 30% for unsecured loans or averaging at 14% for secured loans.

Note that debt consolidation loans usually require collateral, have a higher interest rate than a home equity loan, and require a decent credit score. It is very rare for banks to approve a debt consolidation loan without security unless someone can prove to have a high net worth, a co-signer, or a very strong credit score

Use a Second Mortgage or a Home Equity Loan to Consolidate Debt

Refinancing one’s mortgage, getting a home equity loan, or a second mortgage all just means that a bank or a private lender will lend the borrower some money against the borrower’s home equity. This means that if a home is worth $500,000 and the borrower still needs to pay $200,000, then that means that his or her home equity is $300,000. When a borrower wants to tap into that home equity, a mortgage refinance, home equity loan, or second mortgage will be the way to go to access funds for debt consolidation. The second mortgage is paid on top of a first mortgage. You can talk to us to learn more about a second mortgage, a mortgage refinance, or a home equity loan.

Interest rates for second mortgages are typically higher than those for a first mortgage. On very rare occasions, it is possible to get nearly the same rates depending on a lot of factors. It is also possible to combine the interest of your first mortgage and your second mortgage depending on the lender and their due dates.

Second mortgages are great for consolidating debts because they usually have low-interest rates and flexible payment arrangements. The downside is that there are lots of fees and you are required to have a certain amount of equity.

On the fence whether you’ll apply for a debt consolidation loan or get a second mortgage? Contact us and we’ll be happy to discuss your options according to your needs.

Debt Consolidation and Your Credit Score

Improving their credit score is one of the top reasons why most people decide to consolidate debt. The fact is, improving your credit score is possible with long-term debt consolidation; however, you have to be careful because your credit score can decrease with short-term debt consolidation.

Can Consolidating Debt Hurt Your Credit?

Do you know that creditors make it a point to do a hard credit check on you whenever you take a new card or loan? This lowers your credit score temporarily. Getting a balance transfer can lower it even more since it is viewed as a new credit card. If your transferred balance is quite a lot, that can further hurt your score because that will register as a high credit utilisation ratio. You should take all these factors into consideration more so if you’re planning on getting another loan in the near future.

Can Debt Consolidation Help Your Credit?

You can improve your credit with debt consolidation because it helps you pay your loans on time and do so quickly. On-time payments have a huge positive impact on your credit rating. Basically, you want to have as little debt as possible to effectively improve your credit score.

Things to Avoid for Better Debt Consolidation

The most likely reason why you want to consolidate debt is to improve your finances. If this is your goal, you’ll want to take note of the following:

  • Avoid consolidating debts that don’t need consolidating. Examples are debts with low-interest rate and debts with low balances because the possible savings is not large enough to cover the effort and fees associated with debt consolidation. A 0% introductory interest rate may seem appealing but if the normal interest rate is higher than what you are currently paying, then you won’t really be benefiting in the long run.
  • Avoid spending carelessly. The most likely reason why you got into debt is you spent beyond your means. If you do not acknowledge that your spending habits need a revamp, then you’ll have a harder time managing money and improving your credit score.
  • Avoid forgetting to loan enough to cover your full original debt. A lot of people forget that their loan comes with an origination fee (about 5%) and so borrow $20,000 to cover a $20,000 debt. You’ll fall short of fully consolidating your debts if you forget details like this.
  • Avoid consolidating debt by using a method that does not fit with your financial situation. If you go with a debt consolidation method that does not really work for your specific situation, you might end up with more debts and a worse credit score. This is why consulting debt consolidation professionals is an investment worth making.
  • Avoid expensive debt settlement programs. There are many options for debt consolidation. A good example is using your home equity to consolidate your debt. If you use a debt consolidation program without exploring better options, you can end up destroying your credit in the long run.

Thinking about consolidating your debts but not sure where to start? Contact us at Mortgage Central Canada so we can assess how to best consolidate your debts and discuss your debt consolidation options with you.

Your Guide to Debt Consolidation

Debt consolidation is a means to get out of debt faster by combining multiple debts into a single loan with easier payment terms. By combining several debts into one, you will find it easier to handle your monthly budget and enable you to set aside more money towards loan repayment.

How Does Debt Consolidation Work?

The most common way to consolidate debt is by taking out a debt consolidation loan. A debt consolidation loan is typically a large loan with a relatively lower interest rate than your existing loans and used to pay off existing loans so that you’re left with just one loan to take care of later. The idea is to save on interest and to make loan repayment a lot easier for you.

There are many ways to consolidate debt. The first step is to determine which of the different types of debt consolidation loans to use by assessing which will be most beneficial for you. You may choose from the following:

Using a Balance Transfer Credit Card

If you have a small amount of debt and you think you can pay everything off in a year, moving all of your debt on one credit card may be a good idea. The downside is you usually need an impeccable credit score to qualify for this.

Getting a Secured Loan

If you’re a homeowner or a car owner, you can use your property to borrow money with a lower interest rate. Qualifying for a secured loan for debt consolidation have a varying degree of success and largely depend on how valuable the property you are willing to use as collateral is.

Using Debt Relief

If you’ve exhausted other means of debt consolidation, you may want to look in using debt relief. A debt company will negotiate with your creditors to lower your monthly repayments and APR or negotiate other terms on your behalf. The downside is that this usually comes with a lot of restrictions as well as other requirements that you must comply with.

Applying for a Personal Loan

If you need to pay off huge debts and is willing to take several years to pay off your debts, applying for a personal loan may work for you. With a personal loan, you will borrow a large amount of money to pay off your existing debts and in turn, you’ll end up with a single debt to pay off per month based on the terms you’ve agreed to. A personal loan usually requires that you have a stable income and relatively good credit rating to qualify.

Home Equity Loan for Debt Consolidation

If you’re a homeowner, you may tap into your home equity for debt consolidation. You can choose to get a second mortgage or apply for a home equity line of credit to convert your existing debts into a single lower-interest loan.

Debt consolidation is just the first step towards a debt-free life. You must work hard to identify and stop the behaviours that got you into debt for long-term financial management. Contact us if you want to know more about how you can use your home equity for debt consolidation and how to qualify for a debt consolidation loan even with bad credit.

Thinking About Debt Consolidation? Here Are Your Best and Worst Options

Debt consolidation is one of the best financial solutions for people who have a lot of debt and have issues with debt payment. It is a means to manage paying debt and saving some money on interest. There is no doubt that converting several small loans from different creditors into a single loan is much less stressful and more straightforward; however, not all debt consolidation options are the same.

Some debt consolidation methods have longer repayment terms that mean you end up paying more in interest over time. Some have very flexible terms that may tempt the borrower to put off repaying until debt becomes an issue again. So, what are the best debt consolidation methods and what are their pros and cons? Financial experts CFO and co-founder of Money Coaches Canada Sheila Walkington and head of Credit Counselling Society in B.C. Scott Hannah talked about them in an interview with Global News.

Term Loans

Personal loans or term loans have a near-future end date, generally predictable yet mandatory monthly payments, and often fixed interest rate, making them the easiest debt consolidation method to manage for those who can qualify for it. However, because their repayment scheme is often shorter than a HELOC or some other types of loans, the monthly payments are significantly higher and may not be the best option for someone who is financially struggling. There is no prepayment penalty, though, so if you’re expecting a windfall in the near future, this debt consolidation option may work out for you.

Unsecured Lines of Credit

Unsecured lines of credit come with relatively low interest rates these days, with some charging just 5% to 8% interest. They also come with flexible payment terms, in which you can pay as much as you want or as low as just the interest per month, enabling you to adjust payments with your cash flow. The downside is that the flexible terms can put you deeper in debt if you don’t watch yourself closely enough.

HELOCs or Secured Lines of Credit

A HELOC is one of the debt consolidation methods with the lowest interest rates, with some lenders charging as low as 4.5%. Your home equity is used as collateral for your credit limit so it can help you pay bid debts. Because it is secured by your home, the obvious downside is you risk losing your home if you are unable to pay but if your credit score is not as desirable as what banks require, a HELOC may be a great debt consolidation option for you.

Mortgage Refinancing

Consolidating your high-interest debts into a mortgage may allow you to save a lot on interest because mortgage interest rates can go as low as 3.39% according to Ratehub.ca. Monthly payments are generally low and interest rate is fixed so you won’t have surprises down the road; however, the payment terms are generally longer and you’ll have to pay a pre-payment penalty fee should you be able to pay it off earlier than agreed.

Second Mortgage

A second mortgage for debt consolidation means taking a new home loan on a house that is already mortgaged. Because the lender faces more risks with this type of home loan, the interest rate is generally higher with a second mortgage; however, it is still a smart debt consolidation method because you will still end up saving a lot of money on interest as compared to having a few high-interest debts. After all, one loan is a lot easier to manage than dealing with multiple bills per month.

Need help with debt consolidation? Contact us today! We’ll make it possible to use your home equity for debt consolidation. Let us tell you how.

What You Have to Know About Credit Card Debt Consolidation in Canada

Canada has about 43 million active credit cards at present time according to TransUnion. This huge number of credit cards for Canada’s population of 35 million means that people who do have credit cards have multiple ones, which means that there is an increased probability of them having issues with paying their credit card debt on time.

Why Go Through Credit Card Debt Consolidation?

The above is supported by the fact that an average Canadian has a credit card balance of about $4,100. From this data, it can’t be denied that having credit card debt is a typical problem most Canadians have. Fortunately, credit card debt consolidation is a lot easier to pull off these days as compared to years before.

Credit card debt consolidation is a solution for managing multiple credit card debts to make them easier to pay and manage. It works by combining several credit card debts into one loan with a lower interest rate. By having only a single bill with a lower interest rate to pay, it will be much more doable to pay on time and get loans fully paid off faster.

Options for Credit Card Debt Consolidation

In planning for a debt-free future, you have to make sure that the credit card debt consolidation option you pick is the one that will work best with your financial situation. Read more below!

  • An Unsecured Personal Loan is quite common but can be very challenging to qualify for plus come with relatively high-interest rate compared to other credit card debt consolidation options.
  • A DMP or a Debt Consolidation Program is great for those who need consistent guidance throughout the time they’re trying to go debt-free but will probably not be a good option for those who are more independent or those who have time to go on scheduled meetings with a debt counsellor.
  • A Credit Card Balance Transfer just transfers debt into another credit card with a lower interest rate to allow you to save on interest as early as possible. However, this comes with a fee which may or may not be worth it depending on the money you’ll save on interest. You can save more if you’re able to work with lenders that offer very low transfer rates if you know who to approach and when. 
  • A Home Equity Line of Credit or a Home Equity Loan for debt consolidation is easier to qualify for because these types of loans are secured by the equity of your home. Some lenders will even lend to homeowners who are self-employed or those who have a poor credit rating. Home Equity Loans and HELOCs also allow you to access larger sums of cash if you have a large enough home equity.

Benefits of Credit Card Debt Consolidation

Consolidating credit card debt not only saves you money in the long run but can substantially improve your finances right away. With time, it can also improve and repair bad credit score. If you’re looking for help with credit card debt consolidation, contact us so we can save you time and money by guiding you with making the right choice at Mortgage Central Canada!

Advantages of Debt Consolidation Loans in Canada

Debt consolidation loans are increasingly becoming popular, but what benefits can you get if you decide to apply for a debt consolidation loan in Canada?

Debt Consolidation Loan

A debt consolidation loan is a type of loan that an individual with a lot of various loans can apply for in order to convert multiple loans into 1 easier-to-manage loan. People apply for a debt consolidation loan because having just 1 loan to think of means it is easier to keep track of and pay, not to mention that most types of debt consolidation loans offer lower interest rate than other loans such as personal loan, credit card loan, and car loan. An interest rate difference of just 1% can mean saving thousands of dollars down the line.

Advantages of Debt Consolidation Loans

There are many benefits of debt consolidation loans. They are:

  • Easier to fit into one’s budget because there is only 1 monthly fixed rate payment
  • With a set time frame
  • Usually with a lower interest rate, saving you a lot of money
  • With a lower monthly payment

Get a Debt Consolidation Loan in Canada

You can contact various lenders to apply for a debt consolidation loan. The key to getting approved is to communicate that you’ll be able to pay. Note that lenders are usually looking for the following:

  • Your monthly expenses and budget to show that you can pay loan payments
  • Evidence of enough income to make payments such as pay stubs or pay slips
  • Extra layer of security such as having collateral or having a co-signer

Once you have the above, you can apply for a debt consolidation loan from a bank or other lenders. Note that whoever you apply to, they’ll look at your credit score, your employment status, and your debt service ratio because they will want to make sure that you have the capacity to pay off your loan.

During the loan application process, you must make sure that the following are ready:

  • Your recent pay stub or any proof of income
  • Your recent income tax assessment
  • Your current bills and debt statements
  • Any document that can prove you have assets (if applicable)

Risks for Debt Consolidation Loans

Understand that getting a debt consolidation loan will only work in your favour if you will use it as a tool to help you pay all your debts. It is not a perfect solution unless you are willing to work with it because it is still a loan that you will have to pay off. What it can do for you is to make paying your debts a bit easier and to save you from a financial crisis due to not being able to afford the high interest rates most loans have.

Some debt consolidation loans require a collateral. That means that you can lose whatever you use as collateral if you are unable to honor the terms of your debt consolidation loan. For this reason, it is best to seek the help of loan and mortgage professionals if you want to get a debt consolidation loan. Contact us at Mortgage Central Canada if you have questions or need assistance getting a loan.

Introduction to Debt Consolidation in Canada for Retirees

Living on a fixed income can be very financially stressful with the ever increasing cost of everyday living. Are you aware that Canadians over 65 have been getting more in debt lately? This data was shared in a September 2017 report by Equifax Canada and could be a significant factor why more retired Canadians are turning to taking loans for debt consolidation to help them with managing their finances.

What is Debt Consolidation?

Debt consolidation is a way to reduce the amount of money you pay for interest on a monthly basis by turning multiple loans into one that typically comes with lower interest as well as more convenient single-bill monthly payments. Would’t it make your life a lot easier if you only have one loan bill to pay instead of several?

Debt consolidation with a home equity loan will allow you to accomplish the above while making use of your home equity in a smart way!

Why Consolidate Debt?

Debt consolidation in Canada is done for many reasons which include the following:

Get rid of the stress associated with paying payday loans.

It is not a secret that elderly Canadians go for payday loans to get by when they have unexpected bills. The problem is that they usually end up taking another payday loan the next month to try to make it until the month after because of high-interest.

Paying overdue bills

Unpaid bills can severely damage credit score and accrue penalties or fees, not to mention that they can be very stressful. Paying overdue bills with the use of debt consolidation loan can help you regain financial stability faster.

Manage other loans better

Manage high-interest loans such as some lines of credit, personal loans, and the like by paying them off and saying goodbye to having to pay their rates per month. Imagine saving money on interest and instead, your money actually going towards the payment of your debt.

Eliminate credit card debt

Credit card debt has a tendency to accumulate and get even bigger as the interest gets added up to the total monthly. Paying them off is a smart move.

Get to own your expensive purchase outright

Be it a car or a state-of-the-art home addition, buying things on credit or amortization basis can wreak havoc on your finances if not kept in check. Paying for them with a debt consolidation loan means you won’t have worry about future bills and getting to own your prized purchase right away.

Be able to afford more things in life

Because debt consolidation can save you hundreds of dollars per month in terms of interest saved, you’ll be better prepared to handle unexpected expenses with your new savings or even save up for a dream vacation. That’s called making money work for you!

Looking for a way to reduce financial stress? Debt consolidation might be the right financial solution for you! If you own your home and willing to talk about ways to tap your home equity, contact us and we’ll be happy to discuss your options!

 

How to Use Your Home Equity to Consolidate Your Debt

Debt in Canada has reached a record high. Canadians now owe $1.7 for ever $1 of disposable income, as shared by Statistics Canada. These numbers are alarming and it is a consolation that our housing market is strong. You might love to know that there’s a huge possibility that you’ve built up more equity than what you initially thought.

Equity built up in your home can be used to help you get out of debt if you use it the smart way. It isn’t easy to get out of debt when you’re simply trying to stay afloat keeping up with paying high interest consumer debts like credit cards and auto loans. Why not borrow your home equity to consolidate your debts then?

Why Borrow Your Home Equity?

It sounds counterproductive to borrow money to pay off debt, but know that using your home equity to consolidate debt means swapping huge interest-rate debts for one with very low interest rate. It helps too that once you do this, you’ll only have one easy monthly payment to think of instead of trying to track several.

Consolidating debts using home equity isn’t a new concept, but not many are aware of the different ways this can be achieved. We’ll talk about those ways below.

Apply for a Second Mortgage

A home equity loan, also called a second mortgage, is one of the easiest ways for you to use your home’s equity for debt consolidation. It will also allow you to use up to 85% of your property’s appraised value minus any outstanding mortgage balance from your first mortgage.

Getting a second mortgage will enable you to get a fixed amount of money that you can pay for a fixed amount of time as stated in your loan. It doesn’t replace your first mortgage so you’ll be responsible for making 2 payments per month once approved but the benefits are immense!

The interest rate of a second mortgage is really low so most of the payment you’ll be making will go towards the repayment of the loan. Compare that with credit card interest of about 30% and you can see that by not consolidating you are actually paying nothing but the interest in your credit card.

Get a Home Equity Line of Credit

Applying for a HELOC to use your home’s equity for debt consolidation is another smart move. It is different to a second mortgage because this one doesn’t give you access to funds in a lump sum, rather this gives you a limit as to how much of your home’s equity you can use. You are free to use as little or all of that limited amount at any given time.

Because of the revolving credit nature of a HELOC, you are free to use a huge chunk of it to consolidate debt, pay off a portion of that, and take out small amounts for emergencies and the like. This option gives you more flexibility and freedom as compared to a second mortgage.

Try a Traditional Line of Credit

A traditional line of credit could be great but know that it is very challenging to qualify for. You’ll need an impeccable credit history and possess a great credit score. We all know that most of those who have a lot of loans don’t have that, to begin with.

Need more information about how you can effectively consolidate debt? Contact us and we’ll be sure to discuss possible mortgage related financing options for you.