How Do I Get Out of Debt?

How Do I Get Out of Debt?

Written by Caitlin Wood
Last Updated June 2, 2021

We have been getting a lot of debt consolidation applications lately, so our team feels that it would be good to respond to this demand with an article catered to these individuals.

Debt consolidation is an amazing service that lets you swap a lot of high interest debt with one larger, lower interest loan.

Who can benefit from debt consolidation?

The best way to evaluate how you can benefit from debt consolidation is to ask yourself a few questions: do you have unpaid credit card bills? Do you owe money to your phone service provider? Do you have any other unpaid bills that charge a high rate? If you have one large high interest bill or various small high interest bills it does not matter, you can benefit from debt consolidation. You can save thousands of dollars in interest payments, and you can significantly lower your monthly payment amount, relieve pressure from your budget and live a less stressful life.

If you have home equity…

If you have home equity you can use it to get a loan or refinance your mortgage and pay off your high interest debt. If you find yourself in a tough financial situation and you see yourself getting into financial trouble in the short or long term, but your credit score isn’t yet hit, then we recommend you begin making some tough decisions right now. If you believe that you can benefit from consolidating debt then use your home equity and good credit score now and pay off your high interest debt. Home loan and home equity loan interest rates are at record lows right now, with banks offering rates as low as 3%. Take advantage of today’s financial market.

What types of loans can you get to consolidate your debt that utilize the equity in your home? You can go for a home equity line of credit, a second mortgage, you can refinance your mortgage or you can apply for a debt consolidation loan.

Now, not everybody has a good credit score. If you have home equity but do not have a good credit score, you still have a lot of options. You can find financing through private means. This is actually a little known yet very common alternative for individuals that cannot get financing from a bank to pay off high interest debt. Though interest rates are not as low as they would be with financing from more conventional lenders, private lenders can set you up with rates ranging from 8-10%. That is still significantly lower than the average 20-30% interest rates that come with credit card or cell phone bills, therefore, it is still greatly beneficial to you.

Note: If you have a bad credit score you may also benefit from debt settlement. To illustrate, you can negotiate with the institution that you owe to so that your debt is brought down and settled at a smaller amount. Learn more about debt settlement. If you have debt in collections then debt settlement paired with a private loan secured against your home equity to pay off your high interest debt is a pretty safe bet.

In short: if you have a lot of high interest debt, but you also have equity in your home, know that you can leverage your home equity for funds that you can use to pay your high interest debt off. Again, you will benefit from reduced total interest to pay AND reduced monthly payment amounts.

If you do not have home equity…

Although having home equity is extremely beneficial to one’s debt consolidation strategies, various options exist to those that do not have home equity. For example, there exist various debt consolidation plans that will help you get through this financial hardship, and Loans Canada can help you get started with them.

If you are completely drowned in debt and see no way of being able to get out of it, then a consumer proposal or bankruptcy may very well be the solution you require. Bankruptcy is usually a method of last resort, but thousands of Canadians apply for bankruptcy status every year. Click here for more information on bankruptcy.

How we can help

Loans Canada can help you with debt consolidation and finding financing from either conventional lenders or private lenders. Speak with a representative to take your first step to a better financial future.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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