Being in debt is stressful. Trying to manage multiple monthly bill payments while ensuring you have enough money to put food on the table, can feel overwhelming. If you are drowning in high-interest debt and don’t know how to move forward, you might be a good candidate for debt consolidation.
To learn if debt consolidation is right for you, contact a Licensed Insolvency Trustee (LIT). An LIT can assess your financial situation and help you choose a debt management strategy to improve your situation. Keep reading to learn if debt consolidation in BC is the right option for you.
What is Debt Consolidation in BC?
Debt consolidation is the process of combining multiple debts into one monthly payment. Let’s say you have three maxed-out credit cards, a private student loan, and a personal loan that you’re trying to pay off, all with different interest rates and due dates. Trying to remember multiple payment deadlines with different terms can get confusing and result in missed payments. Debt consolidation can simplify the debt repayment process.
The benefits of debt consolidation
Consolidating multiple loans into one monthly payment can help you to pay off your debt faster by streamlining the process. Instead of remembering multiple payment deadlines, you only have to focus on one. This can result in fewer late or missed payments.
Types of Debt Consolidation
When it comes to how you can consolidate your debt, there are multiple approaches, including:
Debt consolidation loans
With a consolidation loan, you take out one large loan and use it to pay off multiple debts. Ideally, you want to secure a loan with a lower interest rate to reduce the amount of interest you are paying. However, if you have a poor credit score, you might find it difficult to get approved for a lower rate.
Credit card balance transfer
Another option to consider is a balance transfer credit card. Many balance transfer credit cards offer an introductory 0% APR for a period of time, usually between six to 12 months. The goal is to use the credit card to pay off multiple debts. Then, you pay off as much as you can (ideally the entire balance) before the 0% introductory period ends. If you are successful, you can save a considerable amount of money on interest. Similar to a debt consolidation loan however, if you have a poor credit score, you might not qualify for a balance transfer card.
Debt settlement
Debt settlement (also known as debt relief or debt elimination) is the process of negotiating with creditors to try and reduce the amount of money you owe. Typically, you offer a lump sum amount of money, and in exchange, you pay less than your full balance.
You can try to settle your debt on your own or you can choose to hire a debt settlement company. Debt settlement companies are typically for-profit businesses that will charge you a fee for their services. While a creditor might agree to negotiate with you or a debt settlement company, they are not required to do so. It is entirely voluntary. Also, to participate in debt settlement you will need access to lump sum payments which can be difficult (or impossible) to save for when you are already struggling to make ends meet.
Alternatives to Borrowing for Debt Consolidation
When borrowing from a lender, the goal of debt consolidation is to get an interest rate lower than what you pay on your existing debts. If you have a poor credit score, you might find it difficult to qualify for a consolidation loan or a balance transfer credit card with good terms. Luckily, there are also non-borrowing consolidation methods that you can consider.
Debt Management
You can work with a credit counsellor to decide if you’re a good candidate for a debt management program. In a debt management program (DMP), your credit card debt is consolidated into affordable monthly payments based on your budget. Your credit counsellor will negotiate with your creditors to try and reduce or eliminate your interest payments. If your creditors agree to the debt management program then each month, you will make a payment to the credit counsellor and they will pay your creditors.
Consumer Proposal
A Consumer Proposal is a legal process that can only be administered by a Licensed Insolvency Trustee (LIT). In a proposal, you work with your LIT to create an offer to your creditors to pay a portion of your total balance, to extend the amount of time you have to pay, or to do both. The term of a Consumer Proposal can not exceed five years.
Consolidation order
If you live in BC, a consolidation order proceeding is not available, but If you are a resident of Alberta, you can consider this option. A consolidation order (also known as an orderly payment of debt (OPD)) is a legal proceeding in which the provincial court combines all of your debts into one and decides an amount you have to pay to the court regularly.
Is Debt Consolidation Right For You?
If you are carrying multiple high-interest loans, debt consolidation might be a good fit. Consolidating your debt can help to streamline your repayment process, prevent missed payments, and potentially lower the amount you have to pay back. However, simply consolidating your debt won’t fix your financial problems. If you have issues associated with overspending, it’s important to address this to prevent a similar situation from occurring in the future.
If you’re questioning whether debt consolidation is the right choice for you, speak to a Licensed Insolvency Trustee for advice. At Allan Marshall & Associates, we will work with you to assess your financial situation and help you determine which debt relief programs in British Columbia are the best choice.
For debt consolidation in BC, or to learn more about your options, reach out to us today by calling 1-888-371-8900 or fill out our online contact form for a free, no-obligation consultation. We are here to help, you don’t have to navigate your debt alone.
