Consolidation Loans For Unsecured Debts

Debt resembles an unhappy marriage in one important way: It’s easier to enter it than to escape it. During debt’s early stages, you may not even realize that you’re falling further behind on your credit card bills, personal loan balances and other unsecured obligations.

Of course, your debts will eventually grow so large that they’ll become impossible to ignore. Depending on the severity of your situation, you may have trouble simply making your minimum monthly credit card payments. If you’re not careful, you may miss a payment at some point and begin to accrue ruinous late fees and penalty interest.

While thousands of Canadians miss credit card payments each month out of necessity, it’s not something to be taken lightly. It can have devastating consequences for your credit score and may drive you to take drastic measures, like declaring bankruptcy, to shore up your finances.

Before you declare bankruptcy and consign yourself to years of credit limbo, take a moment to clear your head. From Newfoundland to British Columbia, you’re just one of the millions of Canadians struggling to make ends meet in a brutal economy. Hampered by rising food, fuel and clothing prices, families across the country are slowly mortgaging their futures to pay for the things they need right now.

If you’re serious about digging yourself out of your debt troubles, you have plenty of options from which to choose.

Among the most popular forms of debt relief, consolidation loans have proven themselves effective at reducing the interest rates on your basket of outstanding debts. However, they come with several caveats that may give you pause. Don’t let your lender talk you into taking one out without first shopping around and considering other credit relief options.

Once you sign for your new loan, you’ll generally receive enough cash to pay off each of your creditors in full. Think of this as a balance transfer: You’ll be responsible for one larger monthly payment to your debt consolidation lender rather than a slew of smaller, easy-to-misplace obligations to your former creditors.

While they’re undeniably convenient, these loans can be expensive and difficult to come by. If you live in a struggling industrial town in northern Quebec or Ontario and can’t convince a lender that your part-time income is sufficient to cover a loan payment of several hundred dollars per month, you may not be able to get one at all. Consolidation loans are easier to come by in booming provinces like Saskatchewan and Alberta, but they remain significantly more expensive than secured credit facilities like home or vehicle loans.

Before you sign for your loan, review its fine print. Since folks who need debt consolidation loans are viewed as high-risk borrowers, lenders often attach strict terms to these products. Just one missed payment may be enough to push you into default, devastating your credit score and making it difficult if not impossible to procure credit for the foreseeable future.

In addition to protecting yourself against the unforeseen consequences of your loan, you’ll need to hold up your side of the financial bargain as well. Once you’ve resolved to free yourself from debt, draw up a strict household budget and use only cash or debit for the bulk of your purchases.

If you’re wary of all these conditions, consider enrolling in a debt settlement program instead. Unlike credit counseling services, which simply negotiate with creditors to lower their sky-high interest rates by a few points here and there, debt settlement experts have a proven themselves adept at dramatically reducing the principal on their customers’ outstanding debts.

Debt settlement is a simple, powerful concept that’s surprisingly attractive to most creditors. Declaring bankruptcy may ruin your financial reputation for a decade or more, but at least you’ll emerge from the process debt-free. Since credit card balances are an unsecured form of debt, your creditors probably won’t see a dime once you begin the bankruptcy process. As such, they’re willing to take a significant haircut to ensure that they don’t lose everything that they’ve invested in you to bankruptcy.

This process may also be a good deal for you. While every case is different, it’s not unusual for Canadian debt settlement clients to wipe away 40 or even 60 percent of their original debt load. Depending on the size of your debts and your creditors’ willingness to negotiate, the process can take anywhere from 12 to 48 months. By contrast, debt consolidation loans generally take five years to pay off in full.

With its distinctive blend of different credit card balances and personal lines of credit, your personal financial situation is unique. Before you make a debt relief decision that could determine the course of the next few years of your life, carefully consider your options and choose a clear path to debt-free living.