Best Loans For Debt Consolidation
How To Consolidate Debt In Newfoundland And Labrador
Debt consolidation involves combining multiple debts into a single loan with a lower rate and more manageable payments. This strategy can reduce financial stress and potentially save money on interest.
Typically, there are 3 ways to consolidate debt in Newfoundland and Labrador:
- Debt Consolidation Loan
- DMP
- Balance Transfer
1. Debt Consolidation Loans
Several loan options may be available to help you get the funds needed to consolidate your debt:
- Personal Loans: Consolidating debt with a personal loan involves using the funds from the loan to cover all your existing debts. This will leave you with a single monthly payment made to the new lender. This can potentially lower your interest rate and simplify repayment.
- Home Equity Loans: Homeowners can tap into their home equity using a home equity loan. The loan provides a lump sum of money, which is paid back in fixed monthly payments over a set term, typically with lower rates than unsecured loans. It can be used for debt consolidation.
- HELOCs: Homeowners can also use a home equity line of credit (HELOC) to access their home equity. Unlike a home equity loan, a HELOC is a revolving credit line that you can tap into as needed, usually with variable interest rates. You can use the funds for several purposes, like debt consolidation.
Learn more: Debt Consolidation Loans
| Will Consolidating My Debt Hurt My Credit? Consolidating debt can temporarily lower your credit score due to a hard credit check, but it can improve your score over the long run by reducing total debt and simplifying payments. |
| Can I Get A Debt Consolidation Loan If I Have Bad Credit? Yes, you can get a debt consolidation loan with bad credit, though you may be charged higher interest and may be subject to stricter terms. If you own a home and have enough equity, then a home equity loan or HELOC may be a better option to keep your rate low and take advantage of higher loan amounts. |
How Much Can You Save By Consolidating Your Debt?
The potential savings you can realize through debt consolidation can vary widely. Many factors play a role in how much you can save, including:
- Interest Rates: Your new loan’s rate compared to your existing debts matters. Lower rates can lead to major savings.
- Loan Term: Longer terms may lower monthly payments, but may increase the total amount of interest paid over time.
- Fees: Any fees associated with the consolidation loan, like origination fees, can affect your overall savings.
To help you get a picture of how much you could potentially save through debt consolidation, consider this example:
| Debt Type | Balance | Interest Rate | Total Interest Over 5 Years |
| Credit Card 1 | $5,000 | 22.99% | $3,455.42 |
| Credit Card 2 | $6,000 | 21.99% | $3,940.76 |
| Personal Loan | $13,000 | 11.99% | $4,346.73 |
| Total | $24,000 | $11,742.91 |
In this example, your existing debt is costing you $11,742.91 in interest over 5 years.
In comparison, let’s see how much you could potentially save in interest over the same 5-year term if you consolidated your debt with a rate of 9.99%:
- Loan Amount: $24,000
- Interest Rate: 9.99%
- Loan Term: 5 years
- Total Interest: $6,588.66
If you consolidated your debt, you would save $5,154.25 in interest over a 5-year term ($11,742.91 – $6,588.66).
2. Balance Transfers
A credit card balance transfer involves moving existing credit card balances to a new card, typically with a lower rate. This helps reduce interest payments and pay off your credit card debt faster.
How Does It Work?
With a credit card balance transfer, you’ll apply for a balance transfer card, often with a promotional 0% rate. Once approved, you request the transfer of the balance. The new credit card provider pays off your old debt, and you pay off the transferred amount at the introductory rate during the promotional period.
Balance Transfer Fees
Credit card balance transfer fees are charged by the creditor, which is typically a percentage of the transferred amount (usually between 3% to 5%). You pay this fee when moving a balance from one card to another. These fees can affect your overall savings from a balance transfer.
| Warning: Failing to pay off your balance within the introductory period can result in higher rates charged on the remaining balance. This can lead to increased debt and higher payments. |
Learn more: Best Balance Transfer Credit Card In Canada
3. Debt Management Program
A Debt Management Program (DMP) is a plan managed by a credit counsellor to help consumers pay off their unsecured debts. It involves consolidating debt payments into one monthly payment to the credit counselling agency, which then distributes the money to creditors. DMPs can involve lower interest rates and waived fees to make debt repayment easier.
Types Of Debts That Can Be Included In A DMP
DMPs typically include various types of unsecured debts, such as the following:
- Credit card debt
- Unsecured personal loans
- Collections accounts
- Utility bills
- Medical bills
When Should You Consider a DMP?
Consider a DMP if you’re struggling to manage several unsecured debts and need help streamlining payments.
Learn more: Debt Management Program (DMP)
Where Can You Find A Debt Management Program In Newfoundland And Labrador?
Several credit counselling agencies are available in Newfoundland and Labrador to help you with your DMP. Here are a few to consider:
| Agency | Services Provided | |
| Credit Counselling Services of Newfoundland and Labrador | -Budgeting and money management assistance -Credit management -Debt consolidation programs | Learn More |
| Bromwich+Smith | -Consumer proposals -Bankruptcy -Debt relief consultation | Learn More |
| BDO Debt Solutions | -Debt counselling -Consumer proposals -Bankruptcy | Learn More |
Can All Debt be Consolidated in Newfoundland and Labrador?
Now debt consolidation sounds great, and it can be, but it is important to understand that depending on the type of debt consolidation you choose, loan or program, not all types of debt can be consolidated. If you choose a debt consolidation loan, you can consolidate just about any type of unsecured debt. But, if you choose a debt management program, there are some limitations.
Types of Debt That Can Be Consolidated With a Debt Management Program
- Credit card debt of all kinds
- Unsecured personal loan debt
- Auto-repo debt
- Non-government student loan debt
- Past-due phone and utility bills
- Medical debt
Types of Debt That Cannot Be Consolidated With a Debt Management Program
- Mortgage
- Home loans
- Auto loans
- Government loans of all kind
- RV and boat loans
- Back taxes
Of course, if you are interested in discussing the exact specifics of your financial situation you should speak with an expert in Newfoundland and Labrador to make sure that the types of debt you have can indeed be consolidated.
Alternatives Debt Relief Solutions In Newfoundland And Labrador
In addition to debt consolidation, there are other programs available if your financial situation is a little more challenging:
Consumer Proposal
A consumer proposal is a formal agreement to pay back a portion of your unsecured debts. A Licensed Insolvency Trustee (LIT) will negotiate with creditors to come up with a proposal that your creditors will agree to. A consumer proposal is an alternative to bankruptcy that allows you to keep your assets while making manageable payments.
Bankruptcy
Bankruptcy is a legal process that relieves consumers from their debts. It involves working with an LIT to seize assets (with some exceptions) and use the proceeds from the sale of these assets to pay off creditors.
Debt Settlement
Debt settlement is a process in which you negotiate with your creditors to repay less than the full balance owed to settle a debt. This process can reduce overall debt but can negatively affect your credit score.
Learn more: Debt Relief Programs In Canada: What Are Your Options?
