A consolidation loan is a useful financial tool if you have multiple debts. There’s only one monthly payment because different credit accounts and loans are combined. The process simplifies your debt load by taking multiple debts, different interest rates, and payment amounts and combining them into one.
The advantages are a possible lower interest rate and fewer bills to manage. The end goal is to pay off one of these consolidation loans and be debt free.
Statistics for the average credit card balance for the second quarter of 2023 tell the story of how Canadians are going further into debt. The average balance in that time frame was $4,185 which was up from $3,909 in Q1 of the same year.
Read on to find out why consolidation loans are a good idea and how to manage them properly.
How to Navigate Consolidation Loan Management Effectively
Navigating a consolidation loan properly can help you put some of your hard-earned money back into your pockets.
- One of the first steps is looking for different opportunities to consolidate what you owe. Look for high interest loans that you can combine into one payment at a lower interest rate.
- Don’t undo any progress during your debt consolidation by taking on new debt.
- Make sure not to overlook the interest rates. Try to find a rate that’s in your best interest and reduces any financial burdens. Don’t be blinded by the fact that you’re only making one payment.
Don’t forget to assess the monthly payment for one of these loans and place that number into your budget. Here are some tips on making a budget from the government of Canada. Of course, the priority is to pay off the loan so you can be debt free.
Quick Payoff Strategies for Consolidation Loans
Paying off the loan as quickly as possible has a few big advantages. First off, you’ll save on interest. However, you’ll need to be aware of any early prepayment penalties and factor these in.
Still, clearing up debt as quickly as possible is the goal. Here are a few strategies to make that happen with a debt consolidation loan.
Plan Ahead
These loans usually come with a fixed interest rate and a detailed minimum monthly payment. Knowing the interest rate every month allows you to put more than the minimum down. With this kind of information, you can budget accordingly. You can make more payments than the scheduled ones or larger ones at the same intervals.
Negotiate
Negotiating for the lowest interest rate is a big part of paying off a consolidation loan quickly. Understanding where you stand with your credit score is one of the first steps. It’s tough to negotiate for a lower rate if you don’t understand what your payment history looks like. You can get your credit score and credit report from TransUnion and or Equifax.
Understanding all of your options to get debt free means looking at extra payments in a little more detail.
Are Extra Payments on Consolidation Loans Worth It?
Debt consolidation is usually a very good idea for people with several high interest loans to pay off. Taking a look at your interest rate may tell you whether making extra payments is a good idea. Some simple math should tell you if your debt consolidation loan has a lower interest rate than the combined total of the individual loans.
If you’re saving on interest, it’s a good idea to consider making extra payments with the cash that you save on a monthly basis. Make sure to look at your contract and see if there are any prepayment penalties.
Best Tools for Navigating Consolidation Loan Management
Technology makes navigating these types of loans easier. There are resources and tools that can help you while you’re working with a debt consolidation loan. Here’s a list of some of the helpers you’ll want to consider.
- You’ll be able to find loan calculators on the internet, like this one from TD Canada Trust. These calculators can give you a rough idea of how much you owe on different lines of credit, loans and credit cards.
- Financial management apps are another excellent online resource. Budgeting software can help keep you on track.
- Here’s another list of apps that can help. The first one, called Debt Payoff Planner, can give you an idea of what your consolidation loan amount will be by adding up your debts into eight categories.
Having all the information about debt consolidation loans means knowing what to avoid too.
Common Pitfalls to Avoid When Paying Off Consolidation Loans
Debt consolidation loans can help you get back on your financial feet. To stay that way, you’ll need to make the most of the chance these loans offer and avoid these pitfalls.
Using The Cash To Spend More
One of the big benefits of these types of loans is they can free up a little extra cash on a monthly basis. However, it’s important to be cautious because you don’t want to use the windfall to pile on more debt. Try investing in your retirement fund, increasing your loan payments with the extra money, or even building an emergency fund.
Taking on The Longest Term Available
There’s a downside to taking on the longest payment term. Your monthly payments will be lower, but of course, you’ll be paying more in interest over the life of the entire loan. That means your debt becomes more expensive. The goal is to try and find the shortest term you can afford realistically. Some of the budgeting tools mentioned above can help to give you a good idea of your situation.
Are You Looking For A Manageable Consolidation Loan?
Mortgage Broker Store specializes in various mortgage-related products, including consolidation loans. Loan applications not meeting traditional lending institution requirements are one of our focuses. Mortgage Broker Store has private lenders, brokers, and licensed mortgage agents on our team. We can help you prepare for and get a private and/or consolidation loan.
Email ron@mortgagebrokerstore.com or call 416-499-2122.
