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How Debt Consolidation Works In Ontario

Posted on December 16, 2021 by Jivan Sanghera

In Ontario, debt consolidation is just one of the different options available to someone who has a lot of debt and doesn't know how they will be able to pay it.

How Does Debt Consolidation Work?

Debt consolidation means taking out a new loan to pay off multiple debts. This new loan is typically at a lower interest rate than the rates on the individual debts, so it can save you money in the long run. Debt consolidation can also simplify your monthly payments since you’ll only have one bill to worry about instead of several.

How To Consolidate Your Debts

There are many different debt consolidation options. You can work with a company that offers debt consolidation services, take out a consolidation loan, or use a home equity loan or line of credit. It’s important to weigh the pros and cons of each option before deciding which is best for you.

Debt Consolidation Companies

Many companies offer a debt consolidation service, including debt consolidation loans, credit counselling, and debt management programs. Their dedicated credit counsellors can help you consolidate your debts and develop a debt management plan. This plan will help get your finances back on track, helping you save money and pay more than your minimum monthly payment. In addition to helping you get out of debt, they can help you plot out a way to improve a poor credit score.
Professional help is a great debt consolidation option if you have a large debt to income ratio, a bad credit score, or a history of high credit card balances.

Personal Loans

If you have a good credit report, you may be able to take out a personal loan to consolidate your debts. Look for a loan that has a lower interest rate than the loans you’re consolidating, as well as a lower monthly payment.

Be sure to read all of the fine print before signing on the dotted line! A personal debt consolidation loan is unsecured debt, meaning that the loan is not backed by collateral. An example of this is credit cards; you do not have any collateral linked to your credit card, you are simply allowed to spend, and only the worry of having a decent credit score will encourage you to pay off your credit cards. This is why many people develop credit card debts.

Unsecured debts, also known as unsecured loans, have much more risk involved for your financial institution. As a result, they typically have higher interest rates and interest payments than other consolidated debt.

Home Equity Loans or Mortgages

One of the most popular debt relief options is a home equity loan but only if you have ample equity in your home. This type of loan allows you to borrow money against the value of your home. You can consolidate credit card debt and use your home equity to help pay it off!

Choose A Home Equity Debt Consolidation Loan

A second mortgage is a great debt management plan that is available to almost everyone, no matter your financial situation. The only criteria are that you own a property with significant equity.

There are many benefits to using a mortgage for debt settlement, including:

  • A lower interest rate. When you take out a mortgage to consolidate your debt, you typically get a lower interest rate than you were paying on the individual debts.
  • A better loan. If you have trouble qualifying or don’t want to consolidate all of your existing debts at once, a home loan can be a good option. This type of loan typically has looser qualifications than other types of loans, so you may be able to get a better interest rate and terms.

However, there are drawbacks to using a mortgage for debt settlement. These drawbacks are:

  • Two loan payments per month. You'll have to pay off your new debt consolidation loan and your mortgage each month.
  • The possibility of losing equity in your home. When you take out a second mortgage, there’s no guarantee that you’ll get all of your equity back.

Why Should You Consolidate Debts?

Lower monthly payments. Debt consolidation can simplify your monthly budgeting because you’ll only need to make one payment instead of several. This makes it easier for you to stick to your budget, and it can help prevent late or missed payments.

Lower interest rates. When you consolidate your debts, you typically get a lower interest rate on the new loan than you were paying on the individual debts. This can save you money in the long run and help you pay off your debt faster.

One monthly payment. With debt consolidation, you’ll only have one loan payment to worry about, which can make things easier for you. You won’t have to keep track of multiple bills or miss a payment due to disorganization.

Get Help Consolidating Debt

Are you trying to get debt-free but struggle to eliminate debt? Contact us today. Our brokers can provide you with debt consolidation resources. We can also help you consolidate debt with a home equity debt consolidation loan.

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