Is a Debt Consolidation Loan the Right Option for Me?

The credit card statements are neatly piled on the top of your desk waiting to be paid. All have different payment dates scattered throughout the month and collectively the payments are somewhat manageable but the interest rates are making it nearly impossible to get ahead. You've made the decision to pay everything down and not increase your borrowings, but there has to be a better way.

A debt consolidation loan might just be the answer you are looking for. A debt consolidation loan from a reputable lending institution such as a chartered bank or credit union will provide the funds you need to pay off those credit cards, combining everything into one loan with one monthly payment, usually at an interest rate that is considerably lower than the rates charged by the credit card companies on unpaid balances. This can not only save you a considerable amount of money, but can help you to pay off your debt in a much shorter time frame - most consolidation loans are no longer than five years in duration.

Here are some things you should know:

• Be prepared to potentially have to provide collateral to secure the loan. This could be your vehicle or any other asset that is easily liquidated by the lender in the event that you don't make your payments as agreed.
• The rate of interest charged on this loan will be dependent on a number of factors such as whether or not you have any assets suitable to provide as collateral and your credit score.
• Chartered banks and credit unions typically offer the best interest rates, while finance companies typically charge a higher rate of interest even if you have assets to provide as collateral.
• Whether you qualify will likely depend on factors such as your income, assets available to provide as collateral and your other monthly debt payment obligations such as mortgage and car payments.

If you have a good relationship with your bank or credit union, start with them, and be aware that if they aren't able/prepared to help, utilizing the services of a finance company will involve a higher interest rate, and they may encourage you to add costly insurance products such as involuntary unemployment, accident and sickness and life, all at thousands of dollars of additional costs added to the loan amount.

One last tip: Once the loan is obtained, consider cancelling all but one credit card, reduce the credit limit available on that card, and don’t charge anything on it unless you have the money to pay it off in full. Otherwise you run the risk of putting yourself back in the same situation you started out in.

Laura Ryback is a Bankruptcy Trustee within our Winnipeg location. To learn more about debt consolidation or how MNP Debt can help you, contact any of our local offices.