When you’re considering debt consolidation in Ottawa, you shouldn’t enter into it lightly. If done quickly without looking at a number of different factors, you are setting yourself up to more debt, an unworkable interest rate and just continuing the vicious debt cycle, which is slowly pulling you under already.
Here are 5 things to consider before consolidating your debt.
Consult a Non-Profit Credit Counsellor First
If you’re thinking about debt consolidation in Ottawa, or anywhere else in Canada for that matter, because you can’t afford your monthly payments, the last thing you want to do is to add to your expenses. So rather than going to a fancy for profit credit counselling agency, talk to a non-profit agency, such as Credit Canada, first to learn about your options. This will save you money, as a non-profit agency is free of charge, and you will still get first rate advice.
A Home Equity Loan
A home equity loan is a low interest loan, that can seem like a great idea debt consolidation idea, if you have a house, and generally has the fewest hidden fees, and there should not be any ‘teaser rates’. However, you want to be extremely careful about going into this. First if you can’t pay back the loan, you could all too easily lose your home to the bank. Also if you are planning on selling your home anytime before you pay back the loan, it will devalue your home’s overall worth.
If you do take this route, make sure you can pay off the debt and meet the monthly payments. Also take only as much as you need, which is typically how much debt you are currently in. Even if the bank offers you twice as much, don’t take it, because you are only digging yourself deeper into debt and risking your house.
A Debt Consolidation Loan
If you have more than just credit card debt, you should consider a debt consolidation loan. These loans are available at most banks, credit unions and loan lenders, giving you plenty of options to put your many monthly payments into one single easy to manage payment. When doing this you should make sure you are getting a lower interest rate than you are currently paying on your debts, so that you can successfully pay it off. Depending on how many creditors you owe, figuring out which debt consolidation loan is the best can be difficult as you can’t simply look at the interest rates, but how much you owe for each debt, monthly payments, fees, etc.
Other thing to watch out for are hidden fees and costs that can add up, as well as ‘teaser rates’. Teaser rates are similar to the low introductory rates of credit cards that offer low interest for a few months and then potentially sky rocket.
Credit Card Zero Percent and Low-Interest Balance Transfers
If you are mainly suffering from credit card debt, it is possible to consolidate your debt into a single account with most credit card companies. This can often be the cheapest and easiest type of consolidation. However, most of these credit cards only offer low interest rates for a limited time, sometimes just a few months, sometimes a little over a year. If you haven’t paid off the debt by then, you could find yourself paying a much higher percentage on your remaining debt than you originally planned. Also as it is a credit card, you have to resist the urge to use it frequently, which will only increase your debt, and there may be some additional fees added on top of it.
After Debt Consolidation Talk to Your Creditors
So you have your loan or new credit card to consolidate your debt, you could just pay off your existing loans immediately, but there is one thing you should consider, talking to your creditors. Most credit companies simply want their money back plus the existing interest. By talking to a representative politely, and explaining that you are going to pay them back and can do it now, you may be able to have them ignore late payment fees, and even lower your interest rate, saving you money when you pay off the debt.
These five debt consolidation tips are all ways to help you regain your financial footing. However you don’t want to wait too long before doing this, if your credit rating is in the gutter, getting debt consolidation in Ottawa, is much harder, as most creditors won’t believe you can pay them back, so the low interest rates you need won’t be available. It makes no sense to get a medium or high interest loan as you’ll simply be packing on more debt.
This is why the very first step is to talk to a credit counsellor first, to find out if consolidating your debt is the best move. A well thought out consolidation plan is worth its weight in gold, but you won’t get it without help.
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