Benefits of debt consolidation in Canada
One of the most common forms of debts people in Canada have to deal with is ‘credit card debt’. Credit card loans are so convenient that many people hardly realize when they are getting into, or have already gotten into debt. Although credit cards are convenient, they also incur some of the highest interest rates. This means you might be paying about 3-4 times the original loan by the time you are done.
Debt consolidation in simpler terms means taking out a big loan to pay all your small loans. This means the bank ends up paying for all those numerous loans and so you end up having basically the same amount of debt but a smaller amount of debtors. While you retain the same amount of debt, consolidating your debts might be a smart way to manage your exposure in the following ways:
#1. Lower interest rates
Interest rates have a way of increasing your debt, thereby ensuring that you remain in debt for as long as possible so that the institutions you owe are able to gain more. With consolidated debts, however, you might be able to negotiate for a lower interest rate with the bank or other financial institution.
#2. Better payment plan
People are more likely to make one payment than make 12 different payments for something. This is one of the reasons many people find it difficult to keep up with their small loans. Debt consolidation would mean you only need one payment plan for one debt. Although this means you have to pay a bigger sum of money once instead of 12 different small sums of money. This is advantageous because you only have one debt draining your resources and are therefore better able to apportion your resources adequately and keep up with your payments.
#3. Protects your Credit score
No one wants to lower their credit score. This is because it can end up in you being unable to rent that beautiful home in that safe part of town and it actually makes a dent in your financial statement. Debt consolidation takes care of all those tiny loans that threaten your credit score, making it easier for you to protect your credit score and even raise it.
Conclusion
Consolidating your debt might take the pressure off, but it doesn’t end your debts. This, of course, means if you had a problem paying debts generally, you’re still going to have one. In addition, because it means that you still have your credit card, you are able to take more loans which are overall not helpful. Having to consolidate your debt over and over is not a good practice and should be avoided as much as possible.
