According to the most recent government survey from 2019, 75% of Canadians live with debt. Of course, there are multiple kinds. The same research reports that 40% of Canadians hold a mortgage. Those numbers are similar whether you live in Scarborough, Etobicoke, Mississauga, Ajax, or Oshawa.
A full 13% have a balance on a HELOC or line of credit. Twenty-nine percent of Canadians have a balance on their credit cards and 28% owe on vehicle leases and loans.
If your credit score has been damaged by overindulgence in borrowed money or other factors, it’s possible to streamline the payments to improve that all-important number to apply with A-tier lenders.
Here’s everything you need to know to make that happen.
Common Strategies for Managing Multiple Debts and Improving Credit
Getting yourself back on track means learning how to handle money more efficiently. A budget can help supply a financial framework. The personal finance company NerdWallet has some excellent suggestions. Like allocating 50% of any budget for needs, 30% for wants, and 20% for savings. That’s called the 50/30/20 rule.
There are other strategies that can help you to manage multiple debts.
Equifax has a good suggestion on how to place debts in a pecking order so you can manage them. The snowball plan has you paying off all your debts focusing on the ones with the smallest balances first.
A debt consolidation loan might be a good avenue to pursue. These often come with a lower interest rate compared to a credit card. Try to find a lender that will send the money straight to your creditors. That way you won’t be tempted by the extra cash.
Negotiating Payment Plans
If you’re really suffering financially and can’t even make minimum payments, look into forbearance agreements. You don’t need to make any payments during a set period of time with these. However, interest will accrue.
One of the other options you should consider are private lenders. Read on to find out how these alternative companies and individuals evaluate applications.
How Do Private Lenders Evaluate Debt Consolidation Applications?
Private mortgage financing is not constrained by some of the stringent requirements and provincial and federal regulations that come with more traditional products. The process is more streamlined. As opposed to a strict focus on credit scores, private lenders look at other metrics like:
- The property’s existing equity. Private lenders usually require around $70,000 in equity to start the process of debt consolidation.
- The appraised value of the property is one of the other cornerstones.
- The home’s location also plays a significant part in calculating the acceptance of the application and the final loan amount.
- Private lenders also look at the condition of the property. Something like water damage can highlight potential ongoing issues.
One of the other defining metrics private lenders use is called the loan-to-value (LTV) ratio. The formula is simple. The loan amount that’s being requested gets divided by the current appraised value of the home or property in question.
Private lenders will finance up to 75% LTV for a debt consolidation loan. However, the debt consolidation process is a two-way street. Applicants need a checklist of criteria to pick a private lender they can work with.
Picking a Private Lender for Debt Consolidation? Here’s Some Boxes to Check.
Choosing a private lender for debt consolidation means working through some of the following criteria.
- The Fees and The Interest Rates. These are usually higher than with conventional loans.
- The Criteria for Eligibility: These loans are different from more conventional ones. There’s less emphasis on credit scores and a bigger focus on the Loan to Value (LTV) ratio.
- The Reputation of the Lender. Check out any Google Reviews. And look on the company website for testimonials.
After you find the proper private lender that meets your requirements, you’ll be able to take advantage of debt consolidation. Here are a few advantages.
How Can Combining Multiple Debts into A Single Loan Benefit Your Financial Situation?
First off, combining different payments into one single repayment simplifies the process. If you have different debts to pay, there are different amounts, interest rates, and due dates to juggle.
This is a good way to repair a damaged credit score because you’re making on-time payments. Finally, combining multiple debts into a single one speeds up the repayment process.
Getting the whole picture when you’re looking at debt consolidation through a private lender also means taking a look at some of the risks.
Are There Any Risks Associated With Consolidating Debts with a Private Lender?
Private lenders are more flexible. However, there are certain risks involved. The terms and conditions can be different from more conventional loans. These types of consolidation loans can carry higher interest rates because the private lender needs to cover the risks involved.
There are also fees involved that should be carefully detailed by a credible private lender. It’s also a good idea to carefully go over any penalties so everything is transparent. Going over a loan agreement thoroughly is an important part of the process. Make sure to clarify any terms that you’re not completely sure about with the private lender you’re thinking about using.