If you have multiple debts, you may wish to merge them all into one loan. This is called debt consolidation. Below are the most common reasons to do this:
- It can simplify the process of paying loans
- It can potentially lower your interest by a large amount
Ask your bank or credit union about consolidating your debts.
Some of the methods to consolidating your debt are as follows:
Add the Debt to Your Mortgage
If you have a mortgage with enough equity paid, you may be able to add your consolidated loan into it. This is usually the most preferable method since mortgage interest rates are often much lower than other loan interest rates. This means you will be able to arrange much lower monthly payments than with other types of loans.
Get a Debt Consolidation Loan
You can ask your bank, or credit union if they will give you a consolidation loan. Banks and credit unions will usually only give loans of totally 10% of an individual’s total net worth. For example, if your net worth is $20,000, you will probably be able to get a loan no larger than $2000.
Upon being asked for a loan, your bank or credit union will probably ask for security for your loan. This can be a car, boat, motorcycle, RV, mobile home, non-RRSP mutual funds or piece of property.
After taking out a loan, be sure to plan your budget and expenses accordingly. Without these necessary steps, many people who consolidate their loans in attempt to assuage their debt, end up just putting themselves further into debt.
See if Family Will Lend You Money
If your bank or credit union does not grant you a loan, a family member or friend may be able to. However, this can cause an array of problems. Not paying them back on time, or at all, could drastically strain your relationship. Be wary of this before asking a loved one for their hard earned cash.
If you’re unable to acquire a loan for the purposes of debt consolidation, there may be other options. You can get another job, sell your assets, change your lifestyle to better suit your current income, or form a budget. You may have to make short term sacrifices to have a better life in the long term.
Debt Management Program or Orderly Payment of Debts
If none of the above methods work, speak with a Credit Counsellor to see what other options may be available. You may be able to apply for a debt management program or orderly payment of debts program, depending on which province you live in. These programs can help you consolidate all of their credit card payments into one monthly payment and usually involve creditors reducing their interest rates to help you get your debts paid off in a reasonable amount of time.
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