What is debt consolidation?
A debt consolidation loan lets you repay your debts to numerous creditors at once. Essentially you are left with one loan, to the company that issued the debt consolidation loan.
So far it sounds good right? There are other considerations you need to take into account.
With financial institution such as banks, you will most likely need to have a clean credit history, good home equity, co-signer and steady income. Also if collection agencies have started calling, or you have missed payments, you may not qualify for a bank loan.
Using Home Equity
If you use your home equity to obtain your loan, and, if you are unable to make your payments, then there is a chance that your home could be in jeopardy. While there are suitable reasons for using your home equity, using one’s home equity as collateral changes unsecured debt into secured debt which may or may not be a beneficial option.
With co-signers, this can put a family member or friend at risk if you are unable to make your payments.
Using Private Lenders
If you opt to not use a bank and go the private route, this can be costly in the long run as well. While the Ontario government has made changes to the Collection and Debt Settlement Services Act, R.S.O. 1990, c. C.14 to help protect debt consolidation customers, it still can be costly and not always the best solution. You may be required to put of some of your assets as collateral, and missing some payments could put those assets in jeopardy, and you would still owe the balance of that loan to the lender.
One of the disadvantages with a debt consolidation loan, is that it does not provide any legal protection with unsecured debt. It just transfers the debt from a group of lenders to one new lender. If you are dealing with high debts, wage garnishment or collection calls, before making a decision to consolidate your debts, It would be best to get a free consultation with a trustee. They can provide you with the best financial solution for your current situation. Having all the options laid out in front of you can help you make the right financial choice for you and your family, and know you are on the right path to getting back on your feet again.