When you are in deep with credit card debt, paying the minimum monthly amount due only lets you scrape through from one installment to another. However, these payments will not help you clear your debt, or bring you out from the deep, dark financial hole that you may be in.

The truth is that spending or saving habits are not the only culprits here. Climbing interest rates and crawling economic growth rates have further tightened our cash flows. A recent Equifax research study suggests that Canadian consumers continue to steadily pile up their debt. Delinquency rates are also on the rise, and Canadians 55+ are no exception to that. In fact, the average non-mortgage debt per Canadian consumer at the end of Q1 2019 was $23,496.

Whether it is the ever-increasing cost of living, or weak financial literacy, if you or a loved one find yourselves drowning in a pool of various debts, it is time to give some serious thought to debt consolidation.

What is debt consolidation?

Debt consolidation is a financial solution that rolls multiple, high-interest debts into a single debt with lower-interest payments. If you are dealing with a reasonable amount of debt, or simply want to reorganize multiple bills that carry varying interest rates, due dates and payment amounts, you may be the ideal candidate for debt consolidation in Canada.

However, debt consolidation is not a magic wand that will make all credit card debt, mortgage debt and other loans disappear. While it may help reduce your overall debt and help you to pay off your dues faster, it only works when:

Your debt is not excessive: Typically, your total debt excluding a conventional mortgage does not exceed 40% of your gross income.

You have good credit: Your credit scores are good enough to qualify for a 0% credit card.

You plan to keep your debts in check: You are going to prevent running up multiple debts again and have a steady cash flow to cover the payments towards your debt consolidation loan.

Debt consolidation involves taking a new loan to pay off all other debt and liabilities you may have. Essentially, you combine multiple debts into a single, larger piece of debt that usually comes with lower interest rates, lower monthly payments, or both. While smaller loans have higher interest rates, the consolidated loan usually offers more favourable payoff terms.

Debt consolidation loans fall into two broad categories:

Secured loans that are backed by one of your assets. For example, you could offer your house or car as collateral for the new loan.

Unsecured loans that don’t need any collateral. Remember, these may involve lower qualifying amounts and higher interest rates and may also be more difficult to obtain.

Remember, debt consolidation is an early-stage solution that works when your debt is not excessive, and your credit scores are moderate-good. However, if your debt has reached huge proportions, or if you are unable to qualify for a debt consolidation loan, you may have to consider credit counseling, debt settlement, or in the worst-case scenario, file for bankruptcy.

If you are looking into debt consolidation, refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at info@homemortgageadvice.ca.