A typical case: Like many consumers, you’ve taken on a few debts that you’re paying off in monthly instalments on their due dates. One day, something unexpected happens and for some reason, you can’t pay your instalments; what’s worse, you’re also getting behind on your household bills like electricity, heat and phone.
In order to solve your debt problem, are you perhaps thinking of consolidating your debts? This is a common practice that can indeed quickly solve immediate debt pressures via a single new loan that repays all your debts in one fell swoop, leaving you with only a single payment every month and generally less interest than before. What’s not to love? Well, let’s take a closer look…
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It’s the bank that decides
For one thing, this route is not for everyone. Before agreeing to consolidate a consumer’s debts, financial institutions will want to make sure you have the financial means to repay the new loan. You therefore need to have a good credit rating and steady income. You might also find it tough or even impossible to find a financial institution that will make such a loan. Another wrinkle is that some types of debt such as mortgages cannot be bundled into debt consolidation.
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Be careful not to convert unsecured debts into secured debts
Depending on the type of loan approved, debt consolidation can transform unsecured debts into secured debts with obvious benefits for the lender. In such cases, payment default can result in serious consequences for you, such as the seizure of certain types of property – even your home, whereas you might very well have been protected against such action before consolidating your debts. This is particularly true in the case of lines of credit secured by the financial worth of a home.
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The best approach is to address the problem causing all your debts in the first place
Many people who opt for debt consolidation often end up getting deeper in debt two or three years down the road after they’ve maxed out all their credit cards again. That’s why this approach does not attack the underlying cause of financial difficulties. If the original problem causing your indebtedness is not solved, your situation will only get worse because you will then have twice as much debt or more to repay. That’s why if you decide to consolidate your debts, your top priority must become to stick to your budget.
On the other hand, debt consolidation does offer several advantages, such as simplifying your debt management, lowering your interest costs, and enabling you to avoid bankruptcy.
At the same time, although you can certainly consider debt consolidation as a possible solution to your financial difficulties, it’s better to look at every potential options before making a decision. And that’s where Ginsberg Gingras’ trustees in bankruptcy come in, because their role is to help you make the best possible choice – whether it is debt consolidation, a consumer proposal or even bankruptcy. Remember, your first consultation is always completely free and without any obligation on your part.