What is The Best Way to Consolidate Debt for 2021?

Debt is one of the most challenging things to manage for a lot of people, more so during the pandemic. It is not just because it can be easy to have too many debts such as mortgages, loans, and credit cards, but a lot of people have seen their incomes dwindle if not totally evaporate this time. If you are one of the many who is struggling with paying bills these days, you might be wondering about the best way to consolidate debt for 2021. Find out below!

How to Consolidate Debt?

There are many ways to consolidate debt but the best choice depends on the existing cumulative debt balance as well as the type of debts that you have. The most common type of debt that Canadians struggle with is credit card debt. Because credit card debt has a high interest, it follows that the smart way to consolidate them is to seek a lower-interest option that can save you thousands of dollars in interest fees in the long run.

Why Consolidate Debt?

The number one reason for wanting to consolidate debt is to be debt-free. It helps you manage your finances and not forget to pay because instead of multiple bills, debt consolidation will transform them into one bill. With a lower interest rate, you will end up paying more towards the amount you truly owe versus paying for just the interest. With a single bill, you will also be likely able to pay on time and avoid late fees. It is all about saving money while repaying debt.

What You Need to Know About Consolidating Debt

Most people think that debt consolidation is simply taking all other existing debts and putting them in one loan. It is not as simple as that because most loans are difficult to qualify for and have high interests as well. To successfully consolidate debt, you need to make it benefit you in the long term. One way of doing that if you own your home is to get a home equity loan. A home equity loan has a pocket-friendly interest because the loan is guaranteed by the equity you have in your home, making it less risky for the lenders. If a loan has less risk for lenders, it follows that they charge lower interest.

Why Get A Home Equity Loan?

With a home equity loan, you will be able to access the value that you built up in your home without having to sell your property. It is one way of making your money work for you and making your life easier. Since it has a lower interest than other loan types, you will be able to pay off sooner and be debt-free faster.

A home equity loan can be used for other purposes aside from consolidating debt. Any extra from a home equity loan can be used for investment, paying for tuition, getting a home renovation, or funding home repairs. If you use a home equity loan wisely, it can give you a lot of elbow room to fix your finances. Contact us if you want to apply for a home equity loan to consolidate debt.

Is 2021 The Time for Debt Consolidation Using Your Home Equity in Ontario?

A lot of people are feeling the extra pressure as they face increasing bills during the pandemic. Is now the time to consider debt consolidation if you own a home in Ontario?

Do you know that the average household in Ontario owes around $124,700 to $157,700? Considering that the national average is just $114,400, it is clear that the average Ontarian has more financial responsibilities regarding debt. The good news is that applying for a debt consolidation loan is quite commonplace in Ontario especially for those who own a home.

What Is A Debt Consolidation Loan?

A debt consolidation loan is a loan that allows you to pay off multiple loans at once by using the funds from the loan. It combines multiple bills into a single monthly payment which is quite helpful for people who experienced a recent job loss, have unexpected expenses, have excessive credit card spending, or have too many credit cards to pay off. By getting a debt consolidation loan, financial obligations and multiple debts can be made easier to handle.

Debt Consolidation Benefits

Aside from making it easier for you to pay off multiple bills and debts, debt consolidation can improve your credit score. It is no secret that missing several monthly payments can drastically hurt your credit score. By being able to pay on time easier, your credit score can improve through consistent repayments. Once you have a better credit score, you may qualify for a lower interest rate for future loans. A small reduction in interest rate can easily translate to thousands of dollars in savings for big purchases. This will enable you to enjoy faster repayments and thus, make it more attainable for you to become debt-free. Above all, debt consolidation can bring you peace of mind with fewer bills to pay and seeing your finances improve little by little.

What Types of Debt Qualifies for Debt Consolidation?

Most lenders in Ontario have a limit to the type of debts that can be consolidated. Unsecured loans such as unpaid utility bills, credit card bills, and payday loans are usually qualified. Mortgages and car loans might be qualified under some lenders too, so be sure to inquire first.

Borrow Against Your Home Equity for Debt Consolidation

If you have a bad credit score, qualifying for a personal loan for consolidating debt might be challenging for you. The good news is that if you’re a homeowner in Ontario, you can use your home equity to access a big sum of cash to pay off your other loans. It works like a secured debt which means that the interest rate is friendlier to the wallet and the terms are slightly easier to qualify for. More so, getting a home equity loan for debt consolidation can allow you to benefit from the rising value of your property without having to sell your home. It’s a win!

Contact us as soon as possible if you need assistance with applying for a home equity loan for debt consolidation in Ontario. Our offices are open to serve you virtually as well.


Can Credit Score Be Affected by A Debt Consolidation Loan?

What better way to start the year right than by taking care of your debts and working your way to better financial management, right? However, things are not as easy as it seems more so if you’re worried about whether getting a debt consolidation loan will negatively affect your credit score. Can getting a debt consolidation loan help you improve your credit score?

The short answer is yes although it may initially look like a no. When you get approved for a debt consolidation loan, there will be an initial decline in your credit score because it looks like you’ve incurred more debt. However, as you pay off your existing debts with the funds from your loan, you will see a gradual and steady improvement in your credit score as long as you do not get more debt and continuously work on a repayment

How Does A Debt Consolidation Loan Work?

When you get a debt consolidation loan, what you will be doing is essentially converting your high-interest debts into a single debt with a lower interest rate. Because of this, it will be easier for you to make payments for as well as track them. You will save money on interest and be able to use the savings to pay off the principal, thereby repaying your debt little by little. Another benefit is that a debt consolidation loan will have a lower monthly payment than the combined monthly bills for your high-interest loans. If you stick to the payment plan, you’ll find that your debts will be paid off faster too.

What Are Your Options for a Debt Consolidation Loan?

Not all debt consolidation loans are created equal. Some are easier to qualify for and some are easier to pay than others. The most popular ones are listed below:

  • A personal loan can allow you to enjoy a slightly lower interest rate and an easier time to manage a single bill.
  • Balance transfer credit cards have introductory periods that feature almost no interest if you meet the set requirements. They buy you some time to help you have a head start on payments.
  • Retirement account loans let you tap your retirement fund. Failure to pay this back can incur heavy penalties and taxes.
  • A HELOC or home equity loan allows you to have access to your home equity if you are a homeowner. These loans are easier to qualify for and have friendlier interest rates but know that failure to pay may result in you losing your home.

How Debt Consolidation Affects Credit Scores

A new credit application can mean that you will have a temporary lowering of your scores by a few points. If you’ll be opening a new credit account like a personal loan or a credit card, you will likewise experience a temporary lowering of your scores since you have a new debt. When you make payments on time and your credit ages, your score will rise. Know too that a debt consolidation loan will help you show improved payment history and give you a lower credit utilization ratio.

Is it Worth It to Apply for a Debt Consolidation Loan?

The answer is yes if you will be using a source of funds that will be most beneficial for you. If you’re a homeowner in Toronto or the GTA who is interested to apply for a debt consolidation loan using your home equity, contact us at Mortgage Central Canada for fast approval!

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.

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.

Is It Worth it to Refinance Mortgage for Debt Consolidation?

Debt consolidation has many benefits, one of which is avoiding paying huge interest rates. With debt consolidation, paying debt is made much easier because instead of having to remember paying a few bills each month, you’ll only have to remember paying one. With these said, is it worth it to refinance mortgage for you to consolidate debt?

Getting Out of Debt

Many Canadians are weighed down by debt. Almost everyone who isn’t from a privileged background has car payment loans, credit card debts, student loans, and many other kinds of debts. It is easy to forget one or to get buried in paying just the interest in an effort to stay afloat. The problem is, handling multiple high-interest loans is tricky and if your plan is to just keep paying the interest, the loan will still get larger over the course of a year. Debt consolidation is the way to go.

For a lot of people, debt consolidation means taking out another loan. Most debt consolidations loans still come with high interest although a bit lower than say, credit card interest. Homeowners have a chance to save up on interest by applying for secured home loans such as a home equity line of credit (a HELOC) or going for a mortgage refinance for debt consolidation.

How Does Debt Consolidation Work?

So, a quick backgrounder. Debt consolidation is a way of combining multiple high-interest loans into a single loan that should be easier to pay for the debtor. The debt consolidation loan is taken to pay all remaining balances on multiple loans, effectively closing the other debts.

The main advantages of debt consolidation are that the borrower gets to choose a single loan with a lower interest than having to deal with multiple debts and bills, and, saving a lot of time and money in the process if properly planned out and executed. In other words, debt consolidation is a good way to pay debt for individuals who have a reliable and steady income and want to make their monthly debt payments more manageable and affordable.

Is It Worth It to Refinance Mortgage for Debt Consolidation?

Refinancing mortgage for debt consolidation is a way to get a lower interest payment plan. Most credit card debts charge 15-30% interest per month, but a mortgage usually just charge around 5%. Even considering all the fees the process of getting a mortgage refinance will entail, it is still possible to save thousands of dollars this way. Note that a debt consolidation refinance typically involves resetting an existing mortgage at a lower rate at the present time. This frees up some equity or the homeowner can pull out some equity to pay other debts. Closing costs will usually be at around 1-5% of the total loan but this amount is still low if a debtor can end up saving between 10-20% in interest per month.

Is it worth it to refinance mortgage for debt consolidation? The short answer is YES! If you want a more detailed response or interested to know how this applies to your specific situation, do not hesitate to contact us. At Mortgage Central Canada, we’d be happy to assess how debt consolidation can help get you out of debt.


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.

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.