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If you’re like most consumers, you likely have a few different loan payments to make. Perhaps you have a car loan, student loan, mortgage, and credit card debt to pay off every month. While many consumers earn enough to comfortably make these payments on time and in full every month, others are not so lucky.
And while they continue to drown in debt, their credit health suffers at the same time.
Do you find yourself drowning in debt and unable to keep up with your debt payments? Then you may want to consider debt consolidation in Saskatchewan.
What is Debt Consolidation?
Simply put, debt consolidation in Saskatchewan involves taking out one large loan in order to pay off all other loans you have. Rather than having multiple loans to handle, debt consolidation rolls them all into one single loan and therefore leaves you with only one payment to deal with every month. If your debt isn’t too excessive, this plan may work for you.
Reasons Why People Get Into Debt
Nobody intentionally sets out to get into debt. Many times it happens steadily over time and by the time consumers notice it, they’re already in a compromised financial situation. There are many reasons why consumers find themselves in a pile of mounting debt, including the following:
- Overspending
- Irresponsible financial habits
- Missing debt payments
- Losing a job
- Getting a pay cut at work
- Unexpected expenses, such as home improvements, car repairs, medical emergencies, etc.
The list can go on and on. At the end of the day, not having a good grip on your finances can quickly send you spiraling into debt that can be tough to climb out of.
Looking to create a plan to tackle your debt? This infographic is for you.Bad Debt Vs. Good Debt
Is there such a thing as good debt? Yes, actually. While the ultimate goal in financial life is to become debt-free, not all types of debt are necessarily considered bad unless they reach a point that they become too much to comfortably handle. In fact, sometimes it’s not necessarily a good idea to be entirely debt-free.
A crucial consideration to make before taking out credit is to determine whether the debt is good or bad debt. Good debt is considered an investment that will increase in value or provide income over the long run. On the other hand, bad debt is debt that is incurred to buy things that depreciate in value very quickly. Bad debt is also debt that comes with a high-interest rate, such as credit card debt.
Trying to increase your credit score but not your credit card debt? Try reading this.
A mortgage for a home is an example of good debt. While you’ll be responsible for making monthly payments that include interest, a home is a valuable asset that typically increases in value over time. A home is also something that can generate income for you over time in the form of rent.
An example of bad debt would be a car loan. While you might need a car to get around, this type of asset decreases in value the moment you drive it off the lot. And it doesn’t generate any income for you the way a home could.
That said, a mortgage can turn into bad debt if you overextend yourself. If you take out a mortgage that’s way too much for you to comfortably afford, you’ll end up being “house poor” and unable to afford much else. You may even find yourself buying other things with your credit card, which can rack up even more debt than you can handle.
A general rule of thumb would be to avoid purchasing anything that you can’t afford or don’t need. If a trendy sofa needs to be purchased with a credit card that takes you years to pay off, you’ll be spending a lot more than the original purchase price because of interest. And by the time you finally pay it off, you may no longer like that sofa anymore.
Are you more interested in raising your credit score or being debt free? Click here for an answer.
Debt Consolidation Loan Vs. Debt Consolidation Program
A debt consolidation program allows you to work with a professional to help you reduce your debt and make it much easier to manage. One of the tools involved in a debt consolidation program is a debt consolidation loan, which is a specific type of financial tool that allows you to consolidate all of your unsecured debt into one single loan.
Read this if your application for a debt consolidation loan gets denied.
Reasons to Consider Debt Consolidation in Saskatchewan
There are several reasons why someone may want to enter a debt consolidation program, including the following:
- Save on high-interest debts
- Only deal with one payment
- Need help from a professional
- Take advantage of a lower interest rate
- Pay down debt for good and become debt free
- Improve credit score
Types of Debt That Can Be Consolidated
Many types of debt can be consolidated, including:
- Credit card debt
- Retail store credit card debt
- Unsecured personal loan debt
- Credit union unsecured loans
- Auto repossession debt
- Gas cards
- Non-government student loan debt
- Overdue cell phone bills
- Overdue utility bills
- Medical bill debt
On the other hand, federal loans and excessive debt loads cannot be consolidated.
For more information about how your credit score is calculated, click here. Will Debt Consolidation Affect Your Credit Score?
The way that debt consolidation in Saskatchewan can impact your credit depends on the options that you choose. For instance, if you consolidate your debt by taking out a personal loan to pay off your credit cards, your credit utilization ratio can decrease, which can cause your credit score to increase.
But taking out a loan means that a “hard” inquiry will be reported into your credit and when that happens, your credit score will usually dip.
Look here to see more types of debt management products for credit users.
Frequently Asked Questions
What’s the difference between a debt consolidation loan and a regular loan?
There are no major functional differences between consolidation loans and a regular loan. So long as you use a low-interest loan to pay off many high-interest loans, you’re consolidating. It’s important to note credit counseling and consumer proposals are forms of consolidation, but they are not loans. Instead, the interest or total amount of debt is renegotiated with your creditors.
What are the requirements for a debt consolidation loan?
There will be different approval criteria for different products. In order to qualify at all, you cannot be enrolled in a debt consolidation program. This includes credit counseling, consumer proposal, or bankruptcy. You also need a stable income and a moderate debt-to-income ratio. If you cannot qualify, then consider a debt consolidation program where there is no new loan involved.
When should I get a debt consolidation loan?
If you find that your debts are becoming less and less manageable, then you should consolidate them before it’s too late. The best opportunity to do so is while your debt-to-income ratio is under 50% and while you have a credit rating of around 600. You also have to be ready to commit to a budget. Accumulating more debt after you’ve consolidated existing debts will only make your situation much worse.
Get The Debt Relief You Need
Your debt shouldn’t have to make you struggle financially all your life. With the right tools and a little hard work and dedication, there’s no reason why you can’t make your debt much more manageable. With debt consolidation in Saskatchewan, you can achieve your goals and improve your financial life. Find out more about debt consolidation with Loans Canada.
