When facing financial difficulties that include multiple debts, often with high-interest rates, one of the first options people often consider is a consolidation loan.

Debt consolidation can sometimes be a great way to get a handle on your debt and combine your unsecured debts into a single monthly payment.  To qualify, you will likely need a good credit rating, a stable income, and in some cases, collateral to provide security for the debt and/or a co-signer to secure the debt.  If you don’t qualify for a consolidation loan through your regular financial institution, you may be tempted to obtain a loan through a high interest financing company.  That will come with its own set of issues that can frequently make your debt situation worse than it was before.  The two main issues we have seen in the past are higher interest rates and higher fees associated with obtaining the loan.  Most of these loans are at a minimum of 33% interest rate.  The credit cards are currently charging about 19.99%.

These high-interest financing companies will advise that their loan will improve your credit bureau.  The fact is your bank did not give you the loan because your credit rating is already a problem.  If you have missed a payment on a Credit Card, that missed payment will stay on your credit bureau for 6 years and will affect your credit rating for the entire time.  The truth of the matter is these high-interest finance companies spread the higher interest out over a longer time frame.  They make the loan look better than continuing to pay the credit cards because your monthly payment will decrease.  They don’t tell you that you will be paying for a substantially longer period of time.

If you cannot get a consolidation loan at your financial institution (or another bank or credit union) you do not qualify for a proper consolidation loan and shouldn’t be trying to obtain a loan through these high-interest financing companies.  You are better off paying lower interest rates directly on your credit card debt.

If you’ve been unsuccessful at qualifying for a consolidation loan through your financial institution, a consumer proposal may be the preferable alternative. A consumer proposal is a tool legislated by the Federal Government and is another way to consolidate your debt into one monthly payment.  The benefits of a consumer proposal include:

  • Reducing your overall debt without further interest charged
  • Collection activity ceases upon filing
  • Government debts can be included
  • Assets are usually not impacted
  • Avoids filing bankruptcy

A consumer proposal will be noted on your credit bureau rating for a period of three years after you complete your payments or six years from the date of filing, whichever comes first.

If you are overwhelmed with debt, a consumer proposal may be the best option to resolve your debt situation in the shortest amount of time.  Talk to a professional at D. Thode & Associates Inc. today who can help you navigate these options and more. 

Our debt relief specialists will meet with you free of charge to review your situation and assist you in developing your plan to relieve your financial issues.

D. Thode & Associates Inc., Licensed Insolvency Trustees.