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📅 Last Updated: March 8, 2024
✏️ Written By Bryan Daly
🕵️ Fact-Checked by Caitlin Wood

Montreal typically enjoys lower living costs than other major cities in Canada. However, that doesn’t mean that consumer debt and household debt aren’t problems for many residents. Some of those residents can handle their debts quickly, while others struggle with them for months, even years. When that happens, anyone’s financial health can decline rapidly.   

When debt becomes a problem for your living situation, it may be time to seek out a solution. In this case, debt consolidation could be the solution you’ve been looking for. 

Major Causes of Debt

When looking for debt consolidation in Montreal, start by identifying the reason(s) that you got in debt in the first place. While your reasons may differ from other people’s, consumer and household debt can be caused by any number of things, such as:

  • Overusing your credit cards
  • Maxing out your credit limits
  • Losing track of all your bills and payment dates
  • Getting your hours reduced at work or becoming unemployed
  • Medical or legal issues
  • Taking on too much mortgage debt
  • Car accidents, household repairs, and other unexpected expenses

How Debt Can Benefit and Harm Your Finances

The confusing thing about debt is that it can be good and bad for your finances, which is where a lot of borrowers run into problems. It all comes down to how much debt you’re comfortable handling. The more debt you take on and the less you can afford it, the worse your financial situation will become. To better illustrate this idea, we will take a deeper look at mortgage debt and how it can be considered both good and bad debt.

Benefits of Mortgage Debt

Buying a home can be great for you and your financial profile. It can teach you responsibility and help you achieve a fulfilling life goal. A mortgage is the best way of obtaining that goal because it turns something that was once unaffordable into a valuable asset that you can pay off through installments.

On top of that, making your mortgage payments on time is an efficient way of improving your credit and building home equity, both of which can help you in the future.

Do you know how much the average house in Montreal costs?

Drawbacks of Mortgage Debt

On the other hand, if you take on a mortgage that’s out of your price range and begin defaulting on your payments, the debt that follows can be extremely harmful to all aspects of your financial life. Too much mortgage debt leads to late penalties, mounting interest, and of course, the risk of an eventual foreclosure given enough of it.

Want to avoid the foreclosure process? Be sure to look at this.  

In addition, your credit health will decline, thus making it very difficult to get approved for reasonably affordable credit products down the line. Using your home equity for a loan or a HELOC (home equity line of credit), also known a second mortgage, comes with similar risks. If you can’t keep up with the payments for both your first and second mortgages, you can end up in severe debt and eventually lose your house. Only take on debt that you’re sure you can afford to pay back on time and in full!

Are you house poor? Find out here.  

Debt Consolidation: Your Two Options

When your debt amount is getting so hefty that no conventional payment methods (i.e. your savings, income, or revolving credit products) are helping, you may have reached the point where debt consolidation in Montreal is appropriate. That is if you want to avoid more serious measures, such as:

  • Selling your home, car, or other assets
  • Going through a debt settlement
  • Filing for a consumer proposal
  • Declaring personal bankruptcy

If that’s the case, there are two different but helpful debt consolidation services that you can choose from, known as:

A Debt Consolidation Loan

Found with most prime (banks, credit unions, etc.) and subprime lenders (alternative, private, bad credit, etc.), a debt consolidation in Montreal loan functions like a traditional installment loan. You need to apply and be approved for it, and once you are approved, the loan amount and interest rate you receive will be based partially on your financial ability. The loan amount would then be deposited into your bank account in a lump sum and you would pay it back through equally timed and divided installments.

That said, a debt consolidation loan is meant specifically for debt management, the goal is to pay off multiple debts at once, leaving you with only one monthly payment and interest rate to keep up with. They also come with higher interest rates than other loan types, due to the larger level of risk the lender is taking. In addition, these loans are a little harder to qualify for than conventional loans and are more suited for those who are trying to streamline their finances and save on interest.

More often than not, you’ll need elements such as:

  • Good credit health
  • A reasonable income and net worth
  • A stable source of income
  • Collateral to offer as loan security
  • A cosigner

A Debt Consolidation Program

Usually administered by a credit counsellor, a debt consolidation program in Montreal is more appropriate for anyone who cannot handle or doesn’t want the responsibility of a loan, and would rather a professional guide them through the process.

Here, you would need to work with your credit counsellor to come up with a plan for you to pay back your debts. This typically involves the counsellor reaching out to your creditors on your behalf and arranging a deal allowing you to pay off all your eligible debt at once. If the deal goes through, you will begin making similar monthly payments to your counsellor instead, who will then pay your creditors, thereby ending any collection efforts against you.

Nonetheless, there are also a few considerations to make before you apply for a debt consolidation program, including:

  • Debt consolidation programs in Montreal aren’t necessarily free. Some credit counsellors may charge a fee once your creditors are satisfied.
  • Your creditors may not agree to the deal if they find it unfair. In that case, you and your counsellor would need to come up with a new plan or try another method.
  • Once again, failure to make your payments on time and in full will only lead to worse financial health than you had before.
  • Scam artists like to prey on those who are desperate to settle their debts and may establish fake counselling agencies to steal your financial information.
  • This program would show up on your credit report for several years following its completion. As a result, potential lenders who examine your report may consider you less creditworthy until the situation improves.

Click here to see some of the benefits of a debt consolidation program.  

Eligible Debts: What Can and Can’t Be Consolidated

Another thing to consider is what debts are eligible for either of the debt consolidation processes in Montreal. That’s right, not all debts will qualify, namely, those that are collateralized (secured by an asset). Ask your lender or counsellor if your debts are eligible before you apply.

Debts That Are Eligible (Unsecured):

  • Credit cards
  • Personal lines of credit
  • Unsecured loans (personal, bad credit, short-term, etc.)
  • Student loans that aren’t provided by the Federal Government
  • Utility, cell phone, and internet bills
  • Medical bills
  • Outstanding income taxes

Debts That Aren’t Eligible (Secured):

  • Mortgages
  • Car loans
  • Home equity loans or HELOCs (home equity lines of credit)
  • Secured loans
  • Government approved loans
  • Lawsuits and legal bills (child support, court fees, alimony, etc.)

Interested in Debt Consolidation?

If you feel as though debt consolidation in Montreal is the solution you’ve been looking for, Loans Canada can help match you with the right product and the best service provider in your area.

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