Consolidating Credit in Toronto
More often called debt consolidation – credit consolidation involves combining credit related debts into one loan – with the net result of a lower interest rate and lower monthly payments.
There are 4 main credit consolidation options in Toronto. Which one you choose, should be based on your financial situation.
Credit Card Consolidation to One Credit Card
This type of consolidation involves moving the credit card balances from higher interest cards to a lower interest card. This is done to minimize the amount of interest being charged on credit cards.
Although this might solve a short term issue – it can be a disaster in the making, as people often then max out their higher interest cards again – and discover the ‘low interest’ card interest rate was only a limited time offer.
Credit Consolidation Loans
These loans are usually obtained through a financial organization such as a bank or a credit union. Their goal is to combine all the outstanding credit debt into one loan that will enable people to make lower monthly payments, at reduced interest rates.
For those who then stop using credit – this can be an excellent way out of debt – even though this type of loan may require using the debtor’s home as security.
Unfortunately, credit consolidation loans can be the beginning of a debt spiral – which occurs when the borrowers begin the all-too-common practice of continuing to max out credit cards and then taking out more consolidation loans.
Debt Management Programs
These programs are offered by licenced, not-for-profit credit counsellors and involve trying to negotiate a legally-non-binding agreement with the unsecured creditors to see if they will lower their interest rates. In addition, the debtors are taught how to budget and stay out of debt.
This type of program is excellent for the person who is not yet overcome by debt, is able to make the required monthly payments and is able to stop using credit. Unfortunately, not all creditors may choose to participate.
Backed with the full authority of federal government legislation – consumer proposals are an excellent option for people who are insolvent (lacking the resources to repay their debts in a reasonable time), and have a secure enough income to consistently make manageable monthly payments towards their unsecured debt.
In Ontario, only bankruptcy trustees who are licensed by the Office of the Superintendent of Bankruptcy, such as David Sklar & Associates – are permitted to file and administer consumer proposals.
With the aid of their trustee and through a consumer proposal, a debtor offers to repay their eligible, unsecured creditors a portion of their outstanding debt over a period of up to 5 years. In exchange for this repayment – the unsecured creditors stop all interest charges, and stop all collection efforts.
Once the proposal is accepted by a majority of the creditors, it becomes legally-binding on all of the unsecured creditors covered in the proposal, and the debtor will then begin making monthly payments to the trustee for disbursal to their unsecured creditors.
In addition to honouring all the terms of the proposal, the debtor will attend credit counselling sessions to learn the skills to stay out of debt and build a better financial future.
Find Out More
If you are facing overwhelming debt in the Toronto area, you are welcome to call David Sklar & Associates, Trustee in Bankruptcy at 416-498-9200 to book a free consultation. We will review your finances with you and discuss all of your debt/credit consolidation options – in a professional and supportive environment.