How Can Big City Financial Help?
As you can see below, there are many different types of debt consolidation options to choose from in Canada. We have included a brief overview of each option, but if you want to know how each of these options apply to your individual situation, give us a call at 403-891-9973.
Debt Consolidation Loan
This is when someone borrows money and then uses that money to pay off other debts. It might make sense to consolidate high interest debts into one monthly payment with a lower interest rate. However, if your credit rating has gone down because of your debts, you may have difficulty applying for a loan.
Home equity is what’s left when you subtract what you owe on your house from what it’s worth. Depending on how much equity you have in your home, you might be able to borrow against it and use the cash that they get to pay off debt. Using home equity to consolidate debts results in either increasing your mortgage to deal with your debts, or taking out a second mortgage at a higher interest rate, which can make it harder for you to get out of debt in the long run.
Line of Credit or Bank Overdraft
A line of credit or a bank overdraft is when your bank card (debit card) is turned into a credit card so you can spend money you don’t have, up to a predetermined limit. You would then use the money to consolidate and pay off the different debts. Just like a credit card, you only have to make a minimum payment each month.
The biggest difference between the two is that a line of credit “floats” with the Prime rate. For example, your bank may give you a line of credit for Prime + 2%. If the Prime rate is currently at 2.5%, that would mean you would pay 4.5% interest. An overdraft can charge over 20% interest plus a monthly fee.
Using a Credit Card to Consolidate Debts
If you can’t qualify for a debt consolidation loan at a decent interest rate, you could try to consolidate all of your credit card balances onto one low interest rate card and then aggressively pay off this card. From time to time credit card companies offer very low promotional interest rates, and some people use these as an opportunity to consolidate their debts. However, many times people who desperately want these low interest rates, don’t qualify because their credit score is not high enough or they have too much debt.
Debt Management Program
A Debt Management Program (DMP) is a way of consolidating your unsecured debts without borrowing more money. It allows you to get out of debt by making one monthly payment that fits your budget. Your creditors have to agree to allow you to go onto this program, but they typically will if one of our credit specialists believes that this program is the right fit for your situation. The average DMP is completed in less than 4 years.
To “settle your debts” means to offer your creditors a one-time lump sum payment to pay off part of what you we them. In return, they will write off what you aren’t able to pay back. It is important to speak with a one of the Big City Financial agents to find out if signing a debt settlement agreement with your creditors is a good option for you because there are long term consequences to your credit rating if you have debt written off against you.
Consumer Proposals are a legal type of debt consolidation that is available in Canada through a Bankruptcy Trustee. Depending on the type of debts you have and your overall circumstances, filing a Consumer Proposal may be a potential option for you.
Debt Consolidation Advice
Choosing the best debt consolidation option for you requires time and a good understanding of how each option affects your debt.
Contact us to make a free, confidential, and non-judgmental appointment with one of our credit adviors to get expert debt consolidation advice for all the options available to you.