Most Canadians usually turn to credit counsellors for advice when they are heavily in debt and are overwhelmed by the repayment. It certainly is a good idea to turn to a professional credit counsellors when you don’t know what to do about your situation, they have a lot of understanding on financial matters and will be able to offer you helpful advice.
When you visit credit counsellors, they will first of all advice you on how to reduce your spending and expenditure so as not to get into further debt and then they will recommend a debt repayment plan for you based on the amount of debt you owe and your monthly income. One of the recommendations they usually make is taking a debt consolidation loan. This is a tried and tested way of getting out of heavy debt and that’s why the professional experts may be quick to recommend it above other options.
A debt consolidation loan is a large loan that is taken to offset smaller loans. The smaller loans include the debts on your credit card and those from a car or any major household asset. The debt consolidation loan allows you to offset all the loans at once and then remain with only one monthly repayment of the large loan as opposed to smaller loans.
When resorting to debt consolidation as a way of clearing your heavy debts, it is important to first consider your credit rating and make sure it is acceptable. Most financial institutions are unwilling to offer debt consolidation loans to customers with poor credit score as they fear they may fail to repay the loan. You can however still manage to get a consolidation loan with a poor credit score with the help of an asset such as a house or any other major investment, these serve as security in case you are unable to repay the loan. Many financial institutions in Canada can also offer you a debt consolidation loan in spite of a poor credit score if you have a guarantor with a good financial standing.
There are various benefits of debt consolidation. The first and most important of them all is reduced interest on loan. The large loan that is used to offset the smaller loans has a much lower monthly interest rate than the smaller loans. Larger loans generally have lower interest rates than smaller loans since their repayment is spread over a long period of time. You will therefore benefit from a reduced interest rate and be able to save some money when you take a debt consolidation loan.
Secondly, debt consolidation loan offers you reprieve from the stressful task of repaying many small debts every month and from the agony of creditors who may be following up after you every month. When you take a debt consolidation loan, your financial institution will repay all your creditors at once thereby making sure that no creditor comes after you seeking repayment again. You also will not have to be making repayment for many smaller loans every month and will only have one loan to concentrate on. All these will offer you peace of mind.
Thirdly, debt consolidation enables you to improve your credit rating. Your credit will improve because of the prompt and timely repayment of the smaller loans. With an improved credit score, you will be able to easily secure loans in future.
Lastly, debt consolidation allows you to get out of debt quickly. It is easier to get out of debt when you have only one loan to repay at the end of the month as opposed to when you have several loans to repay. You can easily plan your finances to enable you offset the single loan.