What is a debt consolidation loan?
A debt consolidation loan is a loan that allows you to repay many other debts. For example, if you have five credit cards, you may be able to get a debt consolidation loan to pay off the credit cards, so that you only have one payment instead of five each month.
What are the advantages of a debt consolidation loan?
The advantages of a debt consolidation loan are:
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You replace many payments each month with only one payment, which should make it easier to budget your cash each month. |
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Your debt consolidation loan may have a lower interest rate than the rate you are paying on credit cards, so the loan should reduce your interest payments, which means you can repay your debts faster. |
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With lower interest rates and/or extended terms, you may be able to reduce your total monthly payments, which improves your monthly cash flow. |
What are the disadvantages of a debt consolidation loan?
The biggest disadvantages of a debt consolidation loan are that you must qualify for it (so if you have bad credit you probably will not be able to get a loan), and a debt consolidation loan does not reduce your total debt. If you have $40,000 owing on six credit cards and you get a $40,000 debt consolidation loan, you still owe $40,000.
Do I qualify for a debt consolidation loan?
To qualify for a debt consolidation loan in Ontario you must be working, or have some source of income to repay the loan. The larger the loan, the more income you must have to qualify.
If you have poor credit, you may also require security, such as a car or a house that you can pledge as security for the loan.
Finally, if you have poor credit you may also need a co-signer to guarantee your loan.
What is the next step in obtaining a debt consolidation loan in Ontario?
To determine if you qualify for a debt consolidation loan, contact your banker or finance company. The major Canadian banks can be reached on their Bank web sites, or via the yellow pages. You can also research your debt consolidation loan options on the internet.