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What is debt consolidation?

 

What is debt consolidation?

Debt consolidation is a loan granted by your financial institution to reimburse all your other creditors, Your payments are merged into one monthly installment payable over a maximum period of 5 years. The interest rate is usually 12% per year (or more) but it will not affect your credit rating.

If the financial institution refuses to grant you such a loan or if the required monthly payments are too expensive, the consumer proposal may prove to be a very interesting alternative.

A good option for you if:

  • Your credit rating is good.
  • You have the financial capacity to reimburse a loan for 100% of your debts plus 12% interest.

Good for you if:

  • You have a sufficiently good credit rating to obtain a loan
  • You have enough money every month to pay out the loan with a 12% interest rate.

To learn more about our services:

 
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Requirements for a consolidation loan

 
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Requirements for a consolidation loan

  1. A debt ratio below 40% (Calculate your debt ratio);
  2. A good credit rating, i.e. very few or no late payments;
  3. Stable employment.

Calculate your debt ratio

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My first appointment: What can I expect?

 

My first appointment: What can I expect?

The first appointment usually lasts about one hour. Other consultations may be required, depending on the complexity of your file or if you so require. These are free of charge.

The goal is to:

  • Determine the cause of your financial difficulties;
  • Calculate your income and expenses;
  • Determine and analyze your debts and assets;
  • Explain different possible solutions (pros and cons);
  • Offer our advice on the best solutions for you;
  • Answer all your questions.

After the first appointment, you will know what your options are, you will normally have resolved your concerns and worries and you will have answers to all your questions.

You will then be able to take the time to think about the path you wish to take.

What should I bring?*

Assets, income and investments
  • List your debts and recent account statements
  • Pay stub or bank statement
  • Alimony ( judgment or agreement )
House
  • mortgage statement
  • municipal tax bill
  • Act of purchase (if possible)
Car
  • Contract of sale / lease
  • State of recent account
  • Registrations and insurance copies

* Although it is convenient to have these documents in hand for the first meeting, they are not essential and may always be provided thereafter , as required.
 
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What are the benefits

 

What are the benefits

  • 100% refund of your debts over 5 years
  • Only one payment per month, so easier to manage
  • Interest rate (12%) lower than credit cards
  • Keeping your credit record
40%

is normally the maximum allowed debt ratio to be eligible for debt consolidation.

Calculate your debt ratio

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What should I look out for applying for debt consolidation?

1) Make sure that all the debts you are consolidating have an interest rate that is higher than that of your consolidation loan (12%). The goal is to reduce your interest costs, not increase them.

2) Make sure that you can afford the financial institution’s monthly payment. There is no use consolidating if you experience the same financial difficulties after the consolidation as before.

3) Make sure the financial institution does not require a co-signer (guarantor). According to our experience, a missed payment on your part almost always results in a lack of ability, not a lack of will. Therefore, despite your best intentions, you risk causing trouble to a friend or family member if repayment problems occur. Furthermore, a guaranteed loan is considered a loan in favour of the guarantor and it will reduce his/her ability to borrow in the future.

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Why are financial institutions reluctant to grant a consolidation loan?

Firstly, by paying your creditors, the financial institution assumes, alone, the risk that each of your creditor had in regards to their individual debt. Therefore, they would be the only one to lose if, by unfortunate circumstances, you became unable to pay.

Secondly, they fear that you might be tempted to incur new debt after your consolidation loan. In fact, once repaid, your former creditors will not hesitate to solicit your business again. New debt on your part would add to your monthly consolidation payments and increase the risk of financial difficulties.

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Will one or the other of these solutions affect my credit rating?

The two questions that we must ask ourselves are:

  1. Is my credit rating already affected? 
  2. Would I be able to obtain a loan today if I wanted?

All solutions to debt problems have advantages and disadvantages. For example, debt consolidation will not affect your credit rating, but you must be eligible for this type of loan and you will have to pay interest (average of 12%), which will significantly increase your monthly payment. A consumer proposal and a bankruptcy, on the other hand, will have an impact on your credit rating, but are sometimes the only alternatives that will allow you to balance your budget and quickly regain control of your finances by considerably reducing your debts. In certain circumstances, it is preferable to take these measures to get oneself out of debt, once and for all.

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