How Much Interest are You Really Paying Without Debt ConsolidationJan 28, 2015
The debt load that is currently facing Canadians is a major concern for many people. According to a recent Equifax report, the average Canadian is carrying over $20,000 in debt. That amount does not including mortgages.
While the debt load alone can be staggering, the bigger issue is often the interest rates that Canadians are dealing with on each smaller debt that makes up that $22,000. There are a variety of options available to people when they need to borrow money. Some of those options carry higher interest rates than others. For instance, many credit cards can have an interest rate of 18% or more. There are much more high-risk lender options, such as payday loan businesses, that can carry upwards of 30% interest.
One way to protect yourself against paying more on what you owe, is to consider debt consolidation. Debt consolidation merges all of your debts into one payment each month, reducing your number of bills and making your debt much easier to manage. Consolidation loans also often have a lower interest rate, allowing you to pay off more towards the principal.
A Lower Interest Rate
Creating a consumer proposal or filing bankruptcy will allow you to freeze all interest. If you have multiple debts with high interest rates, you may find the interest charges are preventing you from really getting ahead when you make payments. Look for consolidation loans that offer as low of an interest rate as possible. If you are unsure which method is best for you, try the repayment options calculator to compare options and estimated monthly payments.
Reasonable Payment Terms
When you use debt consolidation to manage the money you owe, you follow a set payment plan that has been created by you and the lender. The repayment plan can range in years, depending on the monthly amount you are able to manage. It is important that you set payment terms that are realistic and affordable based on your household budget. Never borrow money from one lending source to pay for another. The last thing you want to do is accumulate new debt while trying to repay what is already outstanding.
The Affect on Your Credit Rating
If debt is left outstanding for too long, it can have a very negative impact on your credit rating. It is critical to deal with your debt load before it becomes too much to manage and out of control. Many lending sources are willing to prevent debt from affecting your credit, if you show an sincere effort towards getting back on track financially. If a balance does go to a collections agency and ultimately onto your credit, you can work at rebuilding your rating. However, that can take years to do. The sooner you act to tackle your debt, the better situation you will be in.
Read more about your Credit Rating and Credit Score.
Whether you choose to do a debt consolidation loan, create a consumer proposal or manage your own debt repayment plan, you should be proud for taking that first step towards financial stability. It can be difficult to crawl out from under mounting interest rates and sizable debt, but with the right plan in place, you can be focused on saving for your future instead of always paying for the past. Even beginning the process can alleviate stress and improve your overall health and wellness. Use 2015 to take a stand against high interest rates and start gaining control of your money.