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When you are struggling with debt, there are many solutions for you to consider. While some debt situations require a bankruptcy, some could be solved through alternative means, such as a consumer proposal or a debt consolidation loan.
What is Debt consolidation?
Debt consolidation is one method to solve debt problems. Debt consolidation is the process of combining all your debts into one loan. For example, if Bill had many different debts: credit card, car loans or mortgages; he could combine all these debts into one loan by borrowing money from a financial institution and pay off all of his different debts. Though this may sound extremely attractive to many individuals, there are certain risks to consider before entering a debt consolidation loan to solve debt problems.
The main benefits to debt consolidation are
- Make lower weekly or monthly payments because you are borrowing at a lower interest rate.
- Easier to manage because you only have one loan.
- No negative effect on credit rating if you make all the payments.
The main risks of debt consolidation are:
- Will only be a temporary solution if you are unable to make payments over the lifetime of the loan.
- May have to put up collateral to enter into a debt consolidation agreement.
- Can pay a higher interest rate depending on who your lender is. Consult other financial institutions to see what charge before making a decision.
- Hidden fees: payment default fees, alteration fees, missed payment fees. Always read the fine print before signing any agreement.
Debt consolidation is not for everyone and it is best to consider your own personal financial situation. You can always consider a free initial consultation with C.E. Craig and Associates Ltd to discuss your financial situation in a stress free environment.