What are your best debt consolidation options?
If you ever find yourself managing too many debts, then debt consolidation would be a good idea. Debt consolidation allows you to merge all your numerous debts into one so you get a better hold on it. The two best reasons to opt for debt consolidation are simplification and interest rates.
– It is simple to handle one debt than multiple ones, especially when there are different lender agencies involved.
– You get an interest rate break from those loans that have high interest rates.
There are many ways you can go about debt consolidation.
Personal Loan or a Line of Credit
A personal loan is a single lump sum loan reimbursement. A line of credit is money that is accessible over a period of time.
The main issue with personal loans or a line of credit is the interest rate. These rates are variable and may not suit your financial situation. Additionally, your loan application may not get approved because of a poor credit score.
If you have property, you can get a mortgage loan. This is a popular option for many because mortgages generally have a low interest rate. This means that you have the option to arrange lower monthly payments with another type of loan.
Debt Management Program
By getting in touch with a credit counseling agency, you can get professional help to create the right debt management program for you. You can make a monthly payment to the credit counseling agency that then distributes it to your various lenders. Generally, in a Credit Counselling program, you will pay back 100% of your debts. So, if you are having trouble paying your debts now, this might not be the program for you.
However, your lender agencies will have to agree and allow you to go enter a debt management program. They will allow you as long as you are associated with a reputable and trusted credit counseling agency. In a debt management program, the debtor does not have legal protection.
Orderly Payment of Debts
Orderly payment of debts is a lesser form of filing for bankruptcy and allows you to consolidate your unsecure debts. You have to repay your debts within 4-5 years through single monthly payments and you get an interest rate reduction upto 5%. There are administration costs involved, you will roughly pay about 115-120% of your debt.
This is another way to consolidate all your unsecured debt into a single one. The term of a consumer proposal cannot extend over 5 years. It involves a flexible monthly payment system of lump sum payments, semi-annual payments, bi-weekly payments and others. Here, the debtor does have legal protection. We have seen in proposals drafted by us that the majority of the debtors pay back an average of 25% of their debts. So the plan is based on affordability.
So which option should you chose? It all depends on your financial and credit standing. If you are in a terrible condition and just don’t have enough money to even make monthly payments now or in the near future, don’t consider consumer proposal. In such a case, you might as well file for bankruptcy. If you are just having a tough time juggling and paying each debt at the end of the month, a personal or mortgage loan is good enough. A debt management plan or an orderly payment will help you pay all the debt back. So if you can and would like to pay back all of it, then the credit counselling program could be an option. Be aware that paying in full still affects your credit rating. The consumer proposal will also affect your credit, but then it saves you money.
Pick an option that fits into your financial scenario.