The amount of debt the average Canadian citizen has is continually rising. It’s just so easy and enticing to get into this kind of consumer debt.
But it can have major negative effects on your finances, future, and mental health.
If you’re looking for a way out of your debts, you’ve probably heard about debt consolidation. But how does debt consolidation work? We’re breaking down the whole process for you right here!
How Does Debt Consolidation Work?
Debts are so easily incurred from buying a car to making purchases on a credit card. And that’s not mentioning student loans or mortgages. These all can add up and start to take over your life.
Once you realize you have too much debt, it’s time to get out as quickly as possible.
There are several ways that can help you get out of debt as quickly as possible. One of those ways is through a debt consolidation program.
These kinds of programs work through specific organizations to combine all of your debts into one place. This happens by you borrowing the money to pay all of your debts off from a lender. Then you owe that lender the total instead.
If you do the right research and find the right lender, this debt consolidation loan can have a lower interest rate. This will obviously be a much better option for you overall.
But better terms, payment options, and interest rate loans aren’t always possible. You have to be vigilant in your research to make sure all of your bases are covered and it’s the right option for you.
Does Debt Consolidation Work in Your Favor?
One of the most common reasons that someone will opt to participate in a loan consolidation program is because it makes the whole process much simpler.
When you have multiple sources of debt, it can be overwhelming to keep track of it all. with the payment due dates, the payback timeline, the interest rates, and so much more. There is a lot to debt, and having multiple sources makes it even more confusing.
After you consolidate your debt, you’ll only have one payment each month to pay! So much better!
If you can find the right lender with the right terms and program, you can even pay off your debts much faster. And clearly, paying off debts as quickly as possible is what we all want.
Since all of the debt is combined into one, the overall payback period is smaller because you aren’t splitting your resources between loans. It’s all going towards one goal.
The payback period can often be shorter because there is less to pay off. In the ideal situation, debt consolidation will leave you with a lower overall interest rate than you had before. This way, the overall amount you will pay will be significantly lower.
Every debt consolidation program is different and has a different way of assigning interest rates. This is one of the main factors you should look for when doing your research.
Debt consolidation is also a common option for those who want to jumpstart their debt payoff process. Maybe they’ve been making payments here and there but are ready to get serious and out of debt.
It can be a good jumping-off point to meeting your financial goals.
Who Offers Debt Consolidation?
There are specific debt consolidation organizations that will do the work for you. They will find your lender options and help you through the process.
These companies are experienced and understand the process. They may be able to give you extra helpful advice or find you an incredible rate. Going through a debt consolidation program can make the whole process simple.
Or you can find a way to create your own system. Many people will work with their banks to consolidate their debts. This can be done through a personal loan or a balance transfer card.
Either option will end with the same result. It just depends on how involved you want to be in the process.
Is Debt Consolidation Right for You?
While debt consolidation does sound like a cure-all for having too much debt, it’s not the right solution for everyone.
Depending on the debt consolidation program you work with, you may end up with a longer payback period or higher interest rate. If your debts are low enough to begin with, it may be a good idea to just stick it out and avoid the higher costs.
Also, some debt consolidation programs make up the lower interest rates by tacking on additional fees, such as origination fees or early payback fees. These can end up being costly, which makes the process more expensive in the long run.
Beyond the nitty-gritty of actual payment amounts, a debt consolidation program can’t solve bad financial habits.
If you got into debt because you have poor spending habits and aren’t in control of your budget, going through this type of program and becoming debt-free won’t do you any good. The chances are you will return to these habits and rack up debt again.
Instead, a financial planning program may be a better option. These educational programs allow you to learn the techniques and skills needed to manage finances correctly.
The question of does debt consolidation work is a tricky one. It does work great for some people but can be actually quite detrimental to others. It’s important to make sure you do research before starting.
Get on Top of Your Finances
Canadians are borrowing more than ever. The average debt levels are nearly at an all-time high. Many are trying to make this the top of the peak and reduce their overall debts.
Debt consolidation can be a very viable option for many to make the repayment process as smooth as possible. Now that you understand the answer to the question “How does debt consolidation work?”, you can decide whether or not it’s the right choice for you.
If you’re in a bind and need cash fast, contact us today for other options.