How to apply for a debt consolidation loan?

If you think that a consolidation loan might be the solution to settling your debt, the following will provide you with more information with regards to eligibility, duration as well as advantages and disadvantages of the process.

1- List your debts

Since one of the purposes of consolidating debts is to reduce the interest charges you pay, make sure that you only consolidate debts with an interest rate equal to or higher than your consolidation loan, which usually varies between 12% and 14%. Prepare a list of all your debts, noting the monthly payment and the interest rate for each.

2- Calculate your debt load

To obtain a consolidation loan, the financial institution will require a level of indebtedness (Debt Ratio) which, if the consolidation were to be accepted, will not exceed 40%. You can measure your debt ratio with this tool.

3- Check your credit report and score

The third step in their analysis will be to check your credit history and score. You can obtain this report on your own by consulting the Equifax website. You can ask for your credit report with or without your score. Make sure you request both. Your credit score is similar to the average of your grades on a report card, it provides interested parties with a snapshot of your history. Generally, a person in good standing with no prior credit issues with a score of at least 680 is eligible for a consolidation loan.

4- Calculate your debt repayment capacity

Before committing to a consolidation loan, the repayment of which will be spread over 5 years, make sure you have the financial capacity to make the monthly payments. The objective is to reduce your interest costs, balance your budget and regain peace of mind. Not commit to a new loan that you will be unable to pay. When consolidating, the financial institution will normally require that you get rid of the credit cards whose debts have been consolidated. You will therefore no longer have access to those.

Preparing a budget will be the most important step and it will likely be the most demanding. Why? Determining your fixed expenses (rent, car payments, etc.) is a simpler task, but variable expenses (food, clothing, pocket money, leisure, etc.) can be much more difficult to assess. Should you need help getting started, we can assist you in the preparation of your budget. Our experience will provide you with existing norms assist in preparing the first draft of your monthly budget. The last step requires that you keep track of your spending and write down actual expenses in order to compare results with your initial budget’. Income and expenses are likely to vary in time. Regular updates to your budget will be necessary

5- Loan application

Once you have completed the above steps and have determined that a consolidation loan is a viable option, it is now time to make an application. We recommend you start by applying at your current bank as you have an existing relationship with them. They will most likely be in a better position to help you as you have a history with them. Also, a new bank or lender may not want to assume the risk of absorbing debts from other creditors whilst your current bank may be ready to take on that risk.

Should you encounter any problems with the abovementioned steps or require assistance, do not hesitate to contact us. Sometimes, the help of a professional can help you better understand the process, help increase your chances or, in the event of a loan refusal, offer you other solutions such as the consumer proposal.

This help can be provided remotely or in person. It can be obtained quickly, is confidential and free of charge.