Debt Consolidation. It’s a term which tends to cause a lot of concern and confusion. We are commonly asked: “is debt consolidation a scam?”, “how does debt consolidation affect your credit?”, “should I do it?”. The truth is, most Canadians don’t really understand debt consolidation, or how it can make paying off debt easier.
In 2024, Barrie ranked as the city in Canada with the highest credit card debt ($3,000+ on average). There’s no question that many of those living in Barrie are struggling with managing their debt, but can debt consolidation help? We’ll answer that question today in this simple and essential guide to debt consolidation in Barrie. Keep reading to learn more about this effective debt relief option and if it’s right for you.
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Why Barrie Residents Should Know About Debt Consolidation
Carrying the highest credit card debt of any Canadian city, many living in Barrie are notably struggling with their understanding of debt.
Being uneducated about your finances and managing debt is nothing to be ashamed of. It’s actually very common. We’ve worked with thousands of Canadians to help them better understand the debt industry — and nearly all of them had two things in common: a lack of financial literacy and a challenging life circumstance.
Financial literacy is not prioritized in our education system the way it should be, and our economy is causing many to struggle with cost of living, unemployment, and housing. It’s a challenging time to be living in Barrie, Ontario, and we put empathy at the forefront of everything we do.
Debt consolidation is a real, viable pathway to a debt-free life, and many of our clients have chosen the debt consolidation path to resolve their debts. We highly encourage you to keep reading to learn more about how it works and how it can help. Let’s get started!
Debt Consolidation in Barrie: How it Works
Debt consolidation is a process which allows you to combine multiple debts into a single loan. This makes managing your payments easier because you only have to make one monthly payment instead of several.
Let’s break it down more specifically — for debt consolidation, you’ll reach out to a creditor for a loan which will be used to pay off all your current debts, across various accounts (credit cards, personal loans.etc). Once you’ve done this, you will now only have the debt consolidation loan left to pay off.
In order for this to work effectively, the debt consolidation loan should have a lower interest rate than what you were already paying on your previous debts. This is important, as high interest rates play a major role in keeping you in the cycle of debt. Interest will increase your debt amount with each day it isn’t paid off, and the higher it is, the harder it will be to pay it off completely.
In summary, debt consolidation makes your payments lower overall and easier to pay off. It’s also much easier to avoid late fees when only having to make one payment per month.
Debt Consolidation with Banks in Barrie: Be Mindful about Interest Rates
When you go to get a debt consolidation loan, you will probably first consider the major banks like BDO, RBC, Scotiabank, and CIBC. These are some of the biggest banks in Canada. However, it’s important to be mindful when shopping around for a consolidation loan. Look into multiple creditors to see what the lowest interest rate and best terms could be. Major banks can sometimes have higher interest rates. For the best results, just ensure whatever interest rate you get is lower than what you are already paying.
Is Debt Consolidation Right For You?
When Debt Consolidation Would be a Good Choice
- You have various debt amounts spread out across different creditors and accounts.
- You have a stable income and can reliably make payments on a new loan.
- Your current debt amount has a high interest rate and you qualify for a lower rate with consolidation.
- You are ready to live a debt-free life and won’t accumulate more debt while paying off your consolidation loan.
- You don’t want to do a consumer proposal or bankruptcy but still want debt relief.
When Debt Consolidation Might Not be the Best Choice
- You may not qualify for a consolidation loan.
- You have a poor credit history and cannot secure a consolidation loan with a low interest rate.
- You won’t be able to make the minimum payment for the consolidation loan
- You continue to rely on credit cards or lines of credit while trying to pay off your consolidated debt.
Options Other Than Debt Consolidation in Barrie
If you don’t think debt consolidation is the right answer for you, that’s okay! There are still other debt relief options available which might be a better fit for your situation. These options are more aggressive, but they offer greater relief if you can no longer pay your debt off on your own.
Consumer Proposal
A consumer proposal is a formal, legally binding agreement that allows you to settle their debts with creditors for a reduced amount through a single monthly payment over a specific timeframe.
This option is a good choice if you have unsecured debts totaling less than $250,000 (excluding mortgage debt) and are facing financial difficulties that make it challenging to keep up with payments.
A consumer proposal will prevent your creditors from taking legal action during the proposal period. Additionally, you can avoid bankruptcy’s more severe consequences, such as the liquidation of your assets.
Want to learn more? Ask Us About Consumer Proposals!
Bankruptcy
Bankruptcy is a legal process for those who are unable to repay their debts. It involves the liquidation of assets to settle debts or the restructuring of debt under a court-approved plan. Bankruptcy can discharge you of most unsecured debts.
Bankruptcy can be an option if you possess little to no disposable income, and have significant unsecured debt exceeding the limits for a consumer proposal or other alternatives. While bankruptcy offers a fresh start, it comes with substantial long-term financial repercussions, including a significant impact on your credit. We typically treat bankruptcy as a last resort.
Want to learn more? Ask us about Bankruptcy!
Frequently Asked Questions about Debt Consolidation in Barrie
Does debt consolidation hurt your credit score?
Yes, debt consolidation loans will cause a dip in your credit score just as any loan would. But keep in mind that the goal of debt consolidation is to make your debts easier to pay off. If a debt consolidation loan can help you pay off your debts more consistently, it will eventually result in a positive impact on your credit score.
Do credit unions offer debt consolidation loans?
Yes, credit unions do offer debt consolidation loans, and they are generally known to have better terms and lower interest rates than major banks. However, this might not be the case for all credit unions, and the terms you get will ultimately depend on your credit and income.
Why is it so hard to get a debt consolidation loan?
You may have unstable income or poor credit history, which makes it difficult for you to qualify for a consolidation loan or have favourable loan terms.
