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With the cost of living in Winnipeg among the highest in the country and household debt levels significant for many borrowers, specialized debt relief options are a must. Debt consolidation, whether through a loan or a program, can help struggling Winnipeg consumers pay down their debt and regain control of their finances.
How Does Debt Consolidation Work in Winnipeg?
Debt consolidation refers to the process of eliminating multiple outstanding consumer debts in one go. The goal is to reduce your collective debt amount, as well as the interest and penalty fees that may have piled up when you were in debt. While you can also use products like balance transfer credit cards, there are two main debt consolidation services that you can apply for in Winnipeg:
Debt Consolidation Loan
Debt consolidation loans are available through most lenders in Winnipeg, including banks and credit unions (prime lenders), as well as alternative, private, and bad credit institutions (subprime lenders). Essentially, you’ll take out a loan that’s meant specifically to pay off debt, unlike a traditional installment loan, which you could use for any expense. The biggest benefit here would be that after your other debts have been consolidated, you’ll be left with only one monthly payment and lower interest rate to keep track of.
However, as with any debt relief option in Winnipeg, there are a few considerations to make before you apply for a debt consolidation loan, including but not limited to:
- You usually need decent credit in order to qualify.
- Not following through with your payments may result in worse debt problems.
- These loans are usually better for those who are good at keeping up with payments but would prefer to smooth out their finances and save on interest.
- Only certain types of unsecured (non-collateral) debts are eligible, such as:
- Credit card bills
- Utility, phone, and internet bills
- Unsecured loans or lines of credit
- Outstanding income taxes
- Non-Federal student loans
If your debt consolidation loan application gets denied, be sure to read this.
Debt Consolidation Program
If you would prefer not to take out or can’t qualify for a consolidation loan, the alternative would be to enter a debt consolidation program in Winnipeg, which has a similar goal but functions somewhat differently. This involves finding a credit counsellor who will oversee the process and reach out to your creditors on your behalf. The counsellor would then negotiate for you to pay off your unsecured debts through installments, somewhat like a loan. However, you would instead make payments to your counsellor who would send them along on a monthly basis to your lenders until you complete the program and fulfill your financial requirements.
Before you apply with a credit counsellor in Winnipeg, be aware that debt consolidation programs also come with some considerations, including but not limited to:
- Only choose this option if you are willing to take advice from a professional.
- Be prepared to attend credit counselling sessions, which may be mandatory.
- Again, failure to make payments may simply lead to further debt turmoil.
- These are a better option if you have bad credit and can’t get approved for a debt consolidation loan.
- Similar to a consolidation loan, only unsecured debt may be eligible. Most secured debt will be off the table, such as:
- Mortgage payments
- Secured loans and lines of credit
- Home equity loan debt
- HELOC (home equity line of credit) debt
- Vehicle loans (cars, trucks, boats, etc.)
- Bills from lawsuits or legal procedures
Look here to discover more benefits of a debt consolidation program.
Why Would Debt Consolidation Be Necessary?
Debt can come from any number of places, especially when you already have a ton of daily expenses on your plate. Some of the more common reasons why a Winnipeg resident might need debt consolidation include:
- Car accidents or other vehicle-related costs
- Reduced hours at work
- Loss of employment
- Medical or health-related issues
- Flooding, fire, theft, or another home-related emergency
- Lack of financial knowledge
Need some debt management tips? Look here.
Is Debt Ever Good?
Yes, debt actually can be good for you, as long as you don’t take on more than you can handle, and manage it responsibly. The key is that everything must come in moderation.
As an example, let’s talk about one of the better kinds of debt, your mortgage. As long as you take on a mortgage amount that you can comfortably afford, make all your payments on time, and have no trouble covering all related fees and homeowner expenses, you’ll slowly be purchasing a valuable asset. Since your lender will report your payments to one of Canada’s credit bureaus, you’ll also be improving your credit at the same time. Two big benefits for the price of one.
Then again, when you try to tackle a mortgage that’s out of your price range, it can also lead to bad debt. Generally, this happens when Winnipeg homeowners don’t factor all their other regular expenses, as well as any unforeseen ones, into their budget. With their payments, interest rate, household supplies, property taxes, plus all other costs that aren’t even related to the home itself, their income and savings may not be enough.
As a result, they may even start applying for other loans or lines of credit they can’t afford, and of course, overusing their credit cards. Then comes the leaky roof, the broken furnace, the high cost of utilities during a typical Winnipeg winter. All these forms of bad debt can spell financial disaster when push comes to shove.
Check out this infographic and learn how to create a debt repayment plan.
Can Debt Consolidation Affect Your Credit?
While the impact won’t be nearly as significant as a consumer proposal or a bankruptcy would be, debt consolidation can still have both a positive and negative effect on your credit health.
Debt Consolidation Loan
Positive effect – Generally, a consolidation loan will actually be good for your credit score, as you’ll be eliminating at least a large portion of your outstanding debt, as well as reducing interest and penalties that are piling up. With only one monthly payment to deal with, you can raise your credit score slowly but surely.
Negative effect – Nonetheless, a record of your loan will stay on your credit report over the course of your loan payments and for several years after your loan is paid off. If you apply for new credit in Winnipeg during that time, a lender can see this record, assume that you have poor financial habits, and deny your application. Additionally, the same as with all credit products, not managing your payments responsibly will lead to further credit damage.
Debt Consolidation Program
Positive effect – Similar to a loan, your outstanding debts would be reduced, leaving you with a monthly payment, which should help raise your credit score gradually. Your credit counsellor might even be able to negotiate for better interest rates and get your outstanding debt balance reduced, sort of like a debt settlement.
Negative effect – Unfortunately, a debt consolidation program in Winnipeg has a worse effect on your credit, because your credit rating will change to an R7, meaning you’re making regular payments toward a special arrangement to settle your debts. Since your rating will stay the same until the program is complete, it may be hard for you to get approved for any new credit during that time. On top of that, a record of your program will remain on your report for 2-3 years, even after it’s over. Again, potential lenders may see this and assume you’re irresponsible with credit.
Check out this infographic to see which debt management option is right for you.
Loans Canada and Debt Consolidation
If you’re a Winnipeg resident and you’ve been struggling with your debts, a debt consolidation loan or program might be what’s best for you. Luckily, our network can help you gain access to both. Just contact us today or apply below!