Consolidation Loans

What is a Consolidation Loan?

A consolidation loan combines all or most of your smaller debts into one larger loan. With a consolidation loan, you owe one financial institution a larger amount versus the confusion of owing various, smaller creditors differing amounts. As a result, you are only required to make one payment to the financial institution who granted the consolidation loan.

Does a Consolidation Loan Work?

A consolidation loan works when your budget can handle the one payment required by the financial institution who consolidated your debt versus making many, perhaps smaller interest-only payments to the numerous credit cards or smaller creditors you owed previously.

However, qualifying for a consolidation loan may be difficult due to the restrictions imposed by the lender. Often the lender will require that you involve a co-signer to guarantee the loan, or the lender will ask you to pledge assets (i.e., cars, property) as security in case you default on the loan.

The financial institution may also review your credit history and turn you down if your payments to existing creditors are not all up to date. This fact can be problematic if you are trying to obtain a consolidation loan to resolve current debt payment troubles and get back on track.

Are there Alternatives to Consolidation Loans?

Yes. Under the Bankruptcy and Insolvency Act, filing a consumer proposal can provide relief from the struggle to pay all of your debts because it creates a new legal contract between you and your creditors. Filing a consumer proposal will also stop the interest on your debts. A proposal may allow you to compromise the amount of debt you owe and provide you with an extension of time to pay the debt. Once accepted, a consumer proposal is binding on all of your unsecured creditors and you make one monthly payment to the Licensed Insolvency Trustee. In this way, a consumer proposal can help alleviate your financial stress and frustrating budgeting issues.

Under the Bankruptcy and Insolvency Act, a bankruptcy filing can also provide you with relief from the struggle to pay all of your debts because it immediately terminates the obligation to pay most creditors.

As an alternative to a consolidation loan with a financial institution, a Licensed Insolvency Trustee will apply experience and knowledge of bankruptcy and insolvency legislation to assess your situation and provide you with options to begin a fresh start.

If you are unsure how to move forward and struggling with deciding whether a consolidation loan is right for you, or if you have been turned down for a consolidation loan, call us today. Our associates will listen to you, review options with you, and explain to you how we can help you get out from under the burden of debt.

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