Since Calgary is one of Canada’s most popular places to live, the cost of living can be pretty high. As a result, many residents are finding themselves with a significant amount of household and consumer debt on their plates. And, as you may know, debt can be a tough thing to get rid, especially when your income is already dedicated to your other daily expenses.
If that sounds like your situation, there’s no need to worry, because we’re going to discuss two viable solutions, known as “debt consolidation loans” and “debt consolidation programs”, both of which can be found in Calgary.
Why Do Some People Have Too Much Debt?
Debt can come from numerous sources. While building consumer debt, such as from buying groceries and household supplies is pretty much inevitable, there are plenty of other reasons why any Calgary resident might end up with too much debt, such as:
- Reduced hours at work or total loss of employment
- Health issues that lead to the inability to work
- A car accident or other financial emergency
- Expensive but necessary home repairs
- Lack of budgeting knowledge
Take a look at this infographic to learn how to create a debt repayment plan.
Does Good Debt Exist?
While the idea of debt itself might make you nervous at first, there are actually several debt types that can, believe it or not, be good for your financial profile. However, the key to taking on good debt lies in how you, as the borrower, are able to handle it. We’ll give you a few examples to give you a better understanding of good and bad debt in Calgary.
Is a balance transfer or a personal loan better for dealing with debt? Find out here.
As we said, the way you handle your debt is essential for gaining the know-how it takes to become a healthy credit user. In fact, as financially draining as any debt can be, it can also be good for your credit and finances, as long as you’re dealing with your payments in a responsible manner. Some of the more notable debt types that can be good for you include (but aren’t limited to):
Credit Card Debt
Despite the fact that credit cards can also cause bad debt, paying your monthly bills on schedule can be a very efficient way of building or improving your credit. They can also help you pay for things without having to spend money right away and may even come with other benefits, depending on the card type.
Here’s how to choose the right credit card for your financial needs.
Car Loan Debt
One of the more expensive debt types, car loans and costs, in general, can be constant, and annoying to deal with. Nevertheless, if you’re making your loan payments responsibly, you’ll be building credit and slowly purchasing an asset that you can someday use to your benefit. Not to mention, you’ll be buying a car that you might really need to get to work, school, or the grocery store.
Want some information about asset-based leasing and financing? Look here.
Even though any Calgary mortgage can be very pricey, making your mortgage payments on time and in full is a good way of both boosting your credit score and showing lenders that you can handle one of the most expensive debt types out there. Additionally, the more of your mortgage you pay down, the more home equity you’ll build, eventually turning your home into another valuable asset that you can use to secure future credit products.
Read this to learn how you can access your home equity.
Unfortunately, all those good debts can also become bad under the wrong circumstances. In other words, if you can’t make loan payments responsibly, any credit product can seriously harm your finances, especially when late penalties and mounting interest apply. Also, every time you miss a payment or default in some other way (late, short payments, etc.), your credit will be damaged.
Eventually, potential lenders may see your bad debt and bad credit, then decide that you’re too risky to take on as a client. If they do approve you, it may be at a much higher interest rate, which would simply cause more financial harm. Let’s look at the same examples above, only as bad debt:
Credit Card Debt
As beneficial as credit cards can be, they can also be one of the fastest ways of racking up bad debt. For instance, a credit card is often the first credit product you get as a new credit user. Many users, excited by the prospect, start overspending very quickly, maxing out their credit limit and ending up with enormous monthly bills.
Car Loan Debt
As convenient as it can be to have your own car, any motor vehicle comes with expenses that can rapidly cause bad debt. Fuel costs, maintenance, accidents, repairs, insurance, registration, and more. It all adds up somewhere. Then there are your car loan payments, which can also be pricey depending on the make and model of your car, the length of your payment plan, your interest rate, and other such factors. Defaulting not only leads to penalties, but your car might eventually be repossessed if your lender in Calgary feels that you aren’t going to pay them back in full. Always consider these factors carefully before you signed on the dotted line.
Defaulting on mortgage payments is one of the worst things you can do for your finances. Not only will even larger penalties apply, but you’ll also actively be losing your lender’s trust. In addition, there are all the other household expenses to consider as a homeowner, such as property taxes, utilities, and maintenance. All this could leave you house poor and out of options. If you miss too many payments, your home might even be foreclosed. Never take on a mortgage that you can’t comfortably afford. You do not truly own your home until you’ve paid it off in full.
What Are My Debt Consolidation Options?
Luckily, if you’ve fallen into the realm of bad debt, there are two consolidation options that may work for you. Essentially, consolidation involves paying off multiple debts (often from multiple sources) using a single technique, which either comes in the form of a loan or a program. Below, we’ve included a brief explanation of both options so you can choose the one that’s right for your debt situation.
Debt Consolidation Loan
The first option involves finding a lender in Calgary to approve you for a consolidation loan which, unlike other loan types, is meant specifically to pay off debt. Consolidation loans can be applied for through both prime lenders (banks, credit unions, etc.) and subprime lenders (private, alternative, etc.) in Calgary. The goal would be to swiftly pay off at least a significant portion of your other high-interest debts, leaving you with only one monthly payment and lower interest rate to deal with.
Generally, consolidation loans are meant for borrowers in Calgary whose credit has not been damaged badly yet and who have an income that’s high enough to afford the payments. That’s because, like other loans, you have to go through an application process to qualify. If your lender in Calgary thinks, for whatever reason, that you won’t be able to afford your potential payments, your chances of approval will diminish. Therefore, consolidation loans are usually better for borrowers in Calgary who are simply trying to streamline their finances and reduce the amount of interest they’re paying by eliminating multiple debts.
Debt Consolidation Program
Similar to the loans above, debt consolidation programs are established to help borrowers reduce debts from numerous places, resulting in a single monthly payment to keep up with. However, they are a better option for those in Calgary who have bad credit or a low income, who can’t qualify for or don’t want to take on another loan.
In this case, you would need to apply with a professional credit counsellor, who is tasked with reaching out to your lenders and negotiating a payment plan on your behalf. You would then make a series of monthly payments toward your counsellor, who will send them to your lenders. Keep in mind, however, that consolidation programs may not be free. While some credit counselling agencies in Calgary are non-profit, others may charge a fee for their services. In addition, these programs may show up on your credit report and harm your credit score. Even though they can often be more convenient, consider these factors and ask your credit counsellor about their process before you apply.
Interested in seeking credit counselling in Calgary? Read this.
Are There Debts That Won’t Qualify?
Yes. Before you apply for either of the above options, be aware that there are certain debts that will and won’t qualify for consolidation. Generally, only unsecured consumer debt, where no collateral is involved, is qualifiable, including but not limited to debt from:
- Credit cards
- Unsecured traditional loans
- Vehicle repossession
- Non-Government student loans
- Medical bills
Secured debts, where collateral is involved, usually won’t qualify. These types of debt include but aren’t limited to:
- Secured vehicle loans
- Secured traditional loans
- Outstanding tax bills
- Government approved loans
Do You Have Bad Debt?
Stuck with a bunch of bad debt in Calgary? Don’t worry, Loans Canada is here to help. If you’re curious about the debt consolidation options available to you, contact us today or fill out an application below!