Before the coronavirus pandemic, for most people paying off debt was their foremost priority for most people. After the infection spread, millions of people lost their job, and the stress of clearing off debt shifted to availing of new credit. The best of us can be in a severe debt situation which can quickly lead to paying hard-to-manage monthly bills with high-interest rates on your loan. If you availed of credit during those times and now find it tough to clear off the debt, it might be worth considering a debt consolidation plan.
Ultimately, it is how you choose to handle your debt that counts in the end. Thus, if you cannot decide if consolidating your debt is suitable for you or not, choosing a firm that provides debt consolidation Canada might be worth it for you. They are credit counsellors who will educate you about other ways to manage your huge debt and bring down your interest rate.
What exactly is debt consolidation?
Debt consolidation is one way to manage your debt more simpler. under this plan, all of your debt will roll into one payment. You will avail a new loan and pay off multiple debts at once. The new loan comes at a lower interest rate than what you were paying.
When does it make sense to choose debt consolidation?
It is a good idea for borrowers who have several high-interest loans and happens to have a good credit score. It is because a good credit score can help you fetch a loan at a low-interest rate that will help you save money in the long run. Along with the same, to ensure the debt consolidation plan is a success, here are some of the requirements.
- Your monthly debt obligation doesn’t exceed 50% of your monthly gross income.
- With the help of a credit counsellor, you have concluded your whole loan will be paid off within five years.
- You should have enough cash flow to cover payments towards paying off your debt consistently.
- If you choose a consolidation loan, you can pay it off within five years.
Note: If your credit score isn’t high enough to qualify for a lower interest rate, it doesn’t make sense to consolidate your debts.
Why choose a debt consolidation plan?
Let’s take a look at what debt consolidation can do for you.
Instead of paying different Loan EMIs, now you have a single payment to make: With the help of a credible credit counsellor, they will help you choose a bank that will offer a low-interest rate based on your credit score. Choosing debt consolidation can result in lower monthly obligations.
Can Improve your credit score: One of the primary benefits of debt consolidation is that it can give your credit score a nice boost as you reduce your credit utilisation rate or ratio. After paying off credit card bills, your credit utilisation and the credit available to you will come under 30%.
Will be able to repay debt sooner: Debt consolidation loan may speed up the process of clearing off loans.
We are thus saying,
If you had to deal with 4-5 credits from different sources, a debt consolidation plan would indeed feel like a weight has been lifted off your shoulders. This doesn’t mean your debt has gone but with multiple payment deadlines now gone, you can focus on just one debt source. However, despite the convenience of debt consolidation, you should pay close attention to interest rates. With the help of a credit counsellor, it is possible to find a loan that can quickly help you make monthly payments while also saving you on interest in the long run.
