You have most likely heard about debt consolidation. But do you know what it means? There are certainly some negative stigmas associated with it, but it can be a great tool for the right person. Here is a quick overview of what it is, how it works and who can benefit from it.
What does debt consolidation mean?
It is where all of your existing debts are rolled into one. This means that moving forward, you would be making one payment, with one interest rate monthly (or whatever frequency you choose (bi-weekly, weekly etc)). Quite often, the interest rate is lower than some of the rates you were paying before.
When might debt consolidation be an option for me?
Canadians may consider debt consolidation for a couple of different reasons. It’s often used when borrowers are having difficulties managing their debt on their own. If someone has a monthly mortgage payment, credit card bills, vehicle payments and other bills, someone might find it hard to manage all of these debts. Consolidation is meant to simplify your payments. Even with today’s mortgage rates in the high 5’s to low 6’s (as of July 2023). This could still be a great option if you have debts that are carrying a rate well above this.
Debt consolidation is a great tool, as it automatically makes it easier to stay on top of your financial obligations.
Things to consider
As noted above, there are few obvious advantages to consolidating your debt. This process is meant to secure a lower interest rate. This will take some pressure off your payments and provide you with some financial relief. Having one payment makes it easier to keep track of your spending and ensures no previous debts are forgotten.
However, debt consolidation isn’t all sunshine and rainbows. It can cause a short term drop in your credit score, but the good news is that this is temporary. As you make on time payments, your credit score will rebound and has the potential to get higher than it was beforehand. The second thing to note, is that debt consolidation is a longer-term option. People must commit to it, in order for it to have a positive impact on their finances moving forward.
Contact a Mortgage Agent first!
Debt consolidation is something you should discuss with a Mortgage Agent before you take any action. We can work together to see if this is the right option for you, and if so, the best way to get started. We work with many different lenders (big banks, monoline lenders, mortgage companies and credit unions) to locate the best possible product to suit your needs. This way, you can be certain you are taking the best path going forward.
Debt consolidation can seem complicated and nerve-wracking, but we’re here to help make it simple and work with you. If you need to discuss your finances or work out a plan moving forward, it’s important to reach out.
I look forward to working with you no matter what your needs are.