Debt Consolidation

If you’re like most Canadians, you’re probably used to making sacrifices by now. Although the credit crisis that affected much of the developed world didn’t deal Canada a direct blow, the resulting recession dramatically reduced global demand for natural resources and industrial products and put many Canadian firms in a terrible spot.

Even if you survived the carnage unscathed, you likely haven’t received a pay raise in some time. Meanwhile, you’ve continued to rack up charges on the “low-interest” credit cards that you picked up when times were good and banks were giving them away like candy. Now you’re paying through the nose to run a balance on them.

If you’re struggling to make minimum monthly payments that cover little more than your ever-growing interest burden, stop simply treading water and resolve to swim your way out of your debt problem. Finding debt consolidation in Canada is easy: You’ve probably seen ads for debt consolidation loan providers, credit counseling services, and even bankruptcy lawyers online or around town.

Retaining one of these debt relief outfits is as easy as picking up the phone or clicking a URL, but first you’ll need to determine which debt relief option is right for you. Whether you live in a small prairie town in Manitoba or a bustling industrial city along Ontario’s Golden Horseshoe, your particular mix of unsecured debts is unique. Before you commit to any form of debt relief, carefully consider the advantages and drawbacks of each of your options.

Among the most popular forms of debt relief, debt consolidation loans are a refinancing tool that allows you to swap your disparate outstanding debts for a single payment to your loan provider. These products have one major advantage: They let you cancel your existing debts in one fluid movement and consolidate your entire debt load into an easy-to-understand loan with a fixed interest rate.

If you’ve missed a credit card or business loan payment and find yourself accruing penalty interest at ruinous rates, debt consolidation loans may save you serious money. However, they’re not cheap: Since banks and other lenders consider anyone who needs these loans to be a credit risk, they won’t be shy about charging a significant premium over market interest for it.

Before you take out a debt consolidation loan, make sure it’s worth the trouble. If you’ve missed a few credit-card payments and accrued penalty interest on your outstanding credit card balances, your effective annual interest rate may approach 25 percent. For every $10,000 worth of debt, that’ll cost you an extra $2,500 in annual interest charges.

In this situation, taking out a consolidation loan at 15 percent interest would save you $1,000 per year on every $10,000 that you owe. That’s undeniably a good deal.

Unfortunately, debt consolidation lenders are notorious for their unwillingness to accommodate any deviation from their loans’ pre-determined repayment plans. Whereas credit card companies may let your debts pile up indefinitely, consolidation lenders prefer to keep you on a short leash: If you miss a payment or consistently fork over less than the agreed-upon amount each month, you risk pushing your loan into default and devastating your credit score.

Debt consolidation loans may save you some money around the margins of your debt load, but they won’t reduce the principal amount that you owe. Declaring bankruptcy is one way to reduce or eliminate your outstanding debts in short order, but the long-term costs of doing so can be dire.

The laws governing bankruptcy may differ from province to province, but few financial professionals from British Columbia to Quebec recommend using it as anything but a last resort. The reason for this is simple: Bankruptcy has far-reaching, long-lasting consequences for your credit score, affecting your ability to secure credit for a decade or more.

It may not be the perfect solution, but debt settlement offers several advantages over other forms of debt consolidation in Canada. Whereas debt consolidation loans do little more than reduce your outstanding balances’ growth rates and don’t meaningfully reduce the amount of time it takes to pay down your debts, the debt settlement process may eliminate your debt burden in 12 to 48 months.

Although every debt situation is different, debt settlement has a proven record of success. Depending on your creditors’ willingness to settle for less than what you owe, the debt settlement process may eliminate 40 to 60 percent of your total outstanding balance.

If you’re struggling to make the minimum monthly payments on your credit cards and other unsecured debts, stop wondering about where you’re going to get the money to break your cycle of debt and start doing something about the problem. Start the debt settlement process today and look forward to better credit and a brighter future.