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What is a debt consolidation?
The term debt consolidation generally refers to a consolidation loan that aims to combine several debts into one in order to have a single payment and reduce the interest rate. This type of loan may or may not be secured by assets, such as a residence. Some lenders will also require an endorser or co-borrower to reduce the risk that obligations under the debt consolidation loan will not be met.
- When you search on the internet for debt consolidation, you will find, among others, the following types of loans:
- The unsecured debt consolidation loan granted by a financial institution
- A debt consolidation loan secured by a 2nd mortgage on your residence
- A mortgage refinancing that will allow you to pay off several debts by increasing the balance of your first mortgage.
Is the debt consolidation loan a good solution for you?
First of all, it should be noted that an unsecured debt consolidation loan is a term loan and not a revolving credit. That is to say that the balance of the loan decreases with each payment period until it reaches $0. Therefore, make sure you have access to an emergency fund for contingencies before proceeding with this solution. Usually, the consolidation loan is a good solution for a person who has identified the sources of his or her debt and whose financial capacity and income stability will allow him or her to meet payment commitments. The credit history must still be good enough to be able to negotiate a debt consolidation loan agreement bearing a reasonable interest rate.
Comment faire une consolidation de dettes ?
Before you go to the financial institution to apply for your debt consolidation loan, make sure you are well prepared. Have made a budget over a period of one to five years to ensure that your financial capacity is sufficient to meet the repayment agreement. Above all, irregular and unexpected expenses should not be overlooked. In the analysis of your file, we will consider your credit record, your income stability, your assets and your debt ratio. Generally speaking, the financial institution you owe the most to will be the one most likely to grant you an unsecured debt consolidation loan. It is also likely that in this case, the financial institution will only agree to consolidate debts owed to it under a debt consolidation loan. If so, this option may not solve your debt problem. If your indebtedness is scattered among several lenders, a consolidation loan without assets to be pledged as collateral and without an endorser could be next to impossible .. If you are being offered an unsecured debt consolidation loan with a term of more than five years and an interest rate of more than 14%, you would be wise to review the details of the offer with an independent financial advisor before accepting. In the case of a consolidation loan secured by your residence, it would be wise to consult a mortgage broker to get the right advice. Be careful that the debt consolidation loan is not a step towards a deterioration of your financial health.
What to do if the consolidation loan is refused?
If the financial institution has refused you, we invite you to consult us in order to evaluate your financial situation. We will also talk to you about other possible options and compare them with the consumer proposal.
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