Getting out of debt can be tough and unnecessarily stressful, especially when you’re living in Markham, Ontario, where the average cost of living is considerable. And when you have debt of any kind, it’s best if you don’t let it get ahead of you.
If your own level of debt is becoming unmanageable, there’s no need to worry, because there are plenty of solutions available in your area. One of the simplest and most effective ones is known as debt consolidation. If you’re looking for help with debt consolidation in Markham, we have all the information you need.
Live in another city in Ontario, click here for information about debt consolidation in the rest of the province.
Debt Consolidation Loan vs. Debt Consolidation Program
Traditionally speaking, debt consolidation refers to the act of paying down multiple debts using one clean-up technique. Although there are two slightly different versions of this technique, the main goal is always the same; to reduce your outstanding debt level and leave you with only one repayment plan to follow, rather than several.
When accomplished, this would not only decrease the amount of interest you’re paying from month to month, it can also prevent any further damage that your finances and credit score have taken due to your unpaid debts. As mentioned, there are two types of debt consolidation that you can apply for.
Debt Consolidation Loan
Available through various financial institutions in Markham, otherwise known as lenders, the first solution you can try is a debt consolidation loan. Essentially, you would be applying for a lump sum of cash. You would then use the loan to pay down your debts and repay the borrowed funds through monthly installments.
Things to Know About Debt Consolidation Loans:
- As with most credit products, your lender will examine your finances and credit before allowing you to borrow from them. Typically, you will need a decent income, good credit score, and possibly some security (collateral or a cosigner) in order to be eligible.
- The more qualified you are to complete your designated payments, the more money you can secure, the lower your interest rate will be, and the more negotiating power you’ll have for your payment plan.
- Although you’ll be left with a single interest rate to pay, that rate may be somewhat higher than other credit products because your lender thinks you have a greater chance of missing payments.
- Despite its purpose, a debt consolidation loan is a debt like any other. As such, defaulting on your payments can result in late penalties, further debt issues, and even the loss of your asset if you offered collateral.
- A debt consolidation loan will be listed in your credit history, affecting your credit report negatively until the process is over. If you apply for new credit during the ordeal, lenders can look at your report and decide you are too risky to approve.
What happens when your debt consolidation loan application gets rejected? Click here.
Debt Consolidation Program
If you cannot qualify or don’t wish to apply for a loan, you can also enter a debt consolidation program through a credit counselling agency. With a similar goal in mind, a counsellor would contact your lenders for you and offer them a deal that, when accepted, allows you to repay your outstanding balance through monthly installments.
Things to Know About Debt Consolidation Programs:
- A certified credit counsellor can give you all the information you need to improve your financial situation. That said, be aware that some agencies charge a service fee, so you must budget for it accordingly. If you cannot afford this fee, there are many non-profit agencies in Markham.
- A debt consolidation program is not a legally binding procedure, so your lenders are not obliged to accept it. In that case, you and your counsellor may have to come up with another plan of action.
- It’s imperative to do research before you sign up with any credit counselling agency. Make sure your counsellor is properly licensed and has a good reputation before you give them any information.
- You must be comfortable discussing your financial issues with your counsellor and be willing to attend several counselling sessions. Don’t worry, a good counsellor will never judge you and anything you discuss will remain private.
- A debt consolidation program will also appear on your credit report for several years. Additionally, any accounts associated with the process will receive an R7 credit rating. Once again, this can make it hard to obtain new credit until the situation has been reversed.
Will a debt consolidation loan look bad on your credit report? Find out here.
Good Debt vs. Bad Debt
There are plenty of reasons why you might be interested in debt consolidation in Markham. Unfortunately, there are even more reasons why you could end up in bad debt in the first place, including but not limited to:
- Living in an apartment, condo, or house that you cannot afford
- Getting in a car accident or other unexpected event
- Falling victim to a scam, fraud or identity theft
- Having your work hours reduced or becoming unemployed
- Suffering an injury or illness that prevents you from working
Then again, there are numerous debt types that are necessary and may even be good for your financial situation under the appropriate circumstances. Take a look at the examples below so you can distinguish whether you have good debt or bad debt.
Generally, ‘good debt’ refers to any kind that can get you ahead in some way. For instance, using your credit credit card is one of the simplest and most beneficial ways of paying for your daily living expenses.
Not only can you buy your groceries and household supplies with ease, but paying your credit card bills responsibly is an efficient way of building and improving your credit score. On top of that, you’ll have the option of making minimum payments when you can’t afford full ones and many cards come with perks, such as travel points.
On the other hand, that same credit card can put you under a ton of ‘bad debt’, especially when you get into the habit of overspending. Caught off guard by how easy they are to use, you may not realize how many purchases you’re making, only to get slapped with monthly bills that far outweigh your income.
Although minimum payments may save you from late penalties, they can make you use up too much of your available credit limit from month to month, which can decrease your credit score. Not to mention, the more debt you accumulate, the more interest you’ll have to pay, making your debt even larger.
What’s worse, defaulting on too many payments can lead to your card being frozen and even some serious debt collection penalties if your debt is bad enough. Always use your credit products wisely and avoid applying for them if it looks like you won’t be able to afford the debts they can lead to.
Eligible vs. Ineligible Debts
Before you try either form of debt consolidation in Markham, the last thing you’ll need to consider is whether or not your particular debt will be eligible.
Like with many debt management solutions, debts that are secured by collateral must be excluded from the process, as they imply that a lender still temporarily owns one of your assets (for more information about secured vs. unsecured debt, click here). Some types of legal or government-related debt will also be ineligible. However, most unsecured debts, as well as many non-credit debts will qualify.
Examples of Ineligible Debts
- Home equity loans & lines of credit
- Vehicle loans
- Federal student loans
- Legal fines (lawsuits, tickets, etc.)
Examples of Eligible Debts
- Personal loans & lines of credit
- Credit cards
- Traditional student loans
- Vehicle repossession
- Non-credit bills (utilities, cell phone, etc.)
Applying for Debt Consolidation?
If so, be sure to talk to the experts at Loans Canada first. We can connect you with the best sources of debt consolidation in Markham. All you have to do is call us today or check out our website!