Are you looking for a way to consolidate credit card debt, overdue bill payments or other unsecured debts? A debt consolidation loan may not be your best option when it comes to consolidating and reducing your debts. In this article we explain why a consumer proposal may be a better way to consolidate than taking out a debt consolidation loan.
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Debt Consolidation May Not Work
Refinancing your debts through a debt consolidation loan means taking out a new loan and using the proceeds to pay off existing debt. This means you stop making multiple monthly payments and only make one single payment to your new lender. The problem with this approach to consolidating credit is that you are still in debt. You also risk any assets you pledge as security if you are unable to meet the terms of your new consolidation loan.
There are 5 reasons why a debt consolidation loan may not work for you:
- You will still have to repay all your debts, with interest.
- Depending on credit score, the interest may be high, or you may be charged extra fees.
- Your monthly payment may not be affordable.
- You may not qualify for a debt consolidation loan.
- You cannot borrow enough to deal with all your debt problems.
Any of these factors can increase the risk of debt consolidation which is why you may want to consider consolidating your debt with a consumer proposal instead.
Advantage of Consolidating Credit with a Consumer Proposal
There are several reasons why a consumer proposal may be a better debt consolidation solution when you are looking to consolidate credit into a single, lower monthly payment.
A proposal will still achieve one consolidated monthly payment, but that payment is lower because you make a deal to repay only a portion of your debts. In other words a consumer proposal provides the benefits of both debt consolidation and debt settlement.
There are several advantages of a consumer proposal over debt consolidation:
- Proposals are interest free
- You settle your debt for less than you owe
- They deal with all your debts
- No loss of assets or security needed
- You achieve a significantly lower monthly payment
Debt Consolidation vs Debt Settlement
Debt settlement involves negotiating a reduction in the amount you must repay to your creditors. A debt consolidation loan does not settle your debts for less than you owe. You must still pay back the full amount with interest. This is one of the things to consider when thinking about whether you should use debt consolidation or debt settlement when dealing with your debts.
A consumer proposal is the only legal, safe option to consolidate and settle your debts for less than you owe. Other solutions may consolidate debts, but they are not as successful at reducing your overall debt burden as quickly, or as securely as, a consumer proposal.
If you owe money on several credit cards, payday loans and other unsecured debts, chances are you have some debt problems. You likely do not have a large sum of money to pay off any of these debts or the ability to negotiate better payment terms on your own or through a debt settlement company.
Borrowing against the equity in your home is an extremely risky way to consolidate credit card debt and other outstanding bills. If you fail to make your payments, your lender can take action to foreclose on your home or take back what you have pledged as security for the loan. Second mortgages and unsecured consolidation loans can also carry a very high interest rate.
A consumer proposal, filed through a licensed trustee, provides the creditor protection you need while you work out a plan with your consumer proposal administrator to not only combine all of your debts into one, affordable payment, but fully settle those debts for less than you owe.
A Consumer Proposal Consolidates All Your Debts
If you are struggling with debt you will likely have more than one debt. You may not only owe money on several credit cards, but have outstanding bills, bank loans, payday loans and tax debts.
An advantage of using a consumer proposal as a form of debt consolidation, is that most unsecured debts are included in the proposal. This means that all your unsecured credit can be paid off in less than 5 years and you will truly finish the program debt free.
Learn more about how to file a consumer proposal or if you need help consolidating your debts, contact us today for a free, confidential consultation with a licensed professional. We will help you explore the best way to consolidate credit and make sure you get a fresh start. Let us help you explore all your options.