14 Jun Why Use a Debt Consolidation Service?
If you’re overwhelmed with multiple debt payments, consolidation may be a great solution. Let’s look at reasons why you may want to use a debt consolidation service.
Debt consolidation involves taking out a new loan to pay off a number of other debts. The new loan may result in a lower interest rate, lower monthly payment or both. (Investopedia)
The goal of debt consolidation is making your finances more manageable. Instead of making dozens of separate payments each month, you would instead make just one. At the same time, you get to lower the amount of money you pay in interest. Car loan at 12 per cent? Credit cards at 29 per cent? By consolidating, you could reduce these sky-high payments thanks to a more manageable interest rate.
So what loans can be rolled into a consolidation payment? Just about any debt qualifies. Many include their car loans, store accounts, line of credit payments and credit cards.
How Does it Work?
Debt consolidation can be quite simple when you have help. So how exactly does it work? The first step is to sit down with a debt consolidation specialist. Their job is to walk you through the process and make sure you understand the details. Once your loan is approved, that money is used to pay off all of your current outstanding debts – your consolidation specialist will help you out.
Now that all of your previous debts are paid, you are left with only a consolidation loan. From that day forward, all you need to do is make one monthly payment.
Avoid the Pitfalls
Watch the fees. Your goal should be to pay less each month, not more. Make sure that consolidation fees, if applicable, are reasonable.
Another trap some fall into is racking up new debt. Consolidation loans are a great tool when used properly. However, they don’t solve the issues that created the financial problems in the first place.
When taking out a consolidation loan, the goal is to improve your financial situation, not make it worse. It’s important to resist the urge to start filling up credit cards again – focus on paying off your consolidation loan instead. Don’t use debt consolidation as a way to continue spending beyond your means. Cut up your credit cards if you have to.
Many Canadians are struggling with debt. If you’re ready to improve your financial situation, it may be a good time to explore what a debt consolidation service could do for you. Let us help you rebuild your finances. Call us today for free advice on debt consolidation and other loan options.