Posted: 1 Mar '20

When and Why to Use a Debt Consolidation Loan

When and Why to Use a Debt Consolidation Loan

In today’s volatile economy, hard financial times are an unfortunate reality for many. If you are finding it difficult to make ends meet, a debt consolidation loan can be a helpful tool to help you avoid bankruptcy by combining several high interest payments into one lower interest, and often more manageable, payment. If you want to learn more about your debt consolidation options, call us.

When to Use a Debt Consolidation Loan

Debt consolidation loans do just that – they consolidate debt. They combine several of your higher interest payments (such as credit cards or car loans) into a larger, but lower interest loan. Depending on your financial state, the lower interest of a debt consolidation loan can even cause your payment to be less than the sum of many smaller but higher interest payments. Over time, this can save you money and help you pay off your debts more easily.

If you are in financial trouble, consult your mortgage broker to see if taking out a debt consolidation loan is an option for you. These loans aren’t for everyone and are usually only an option if you have at least 20% equity in your home to leverage as collateral. Essentially this type of loan is merging all of your debt into your mortgage. This allows you to have one monthly payment usually with a lower interest rate.

Here are some of the upsides of using a debt consolidation loan:

  • Often lower interest rates
  • One larger payment to manage vs. several smaller ones
  • Could possibly loosen your budget and decrease financial stress
  • Improve your credit rating

When Not to Use a Debt Consolidation Loan

If you and your household are so far in debt that you are having trouble paying for basic utilities and food, you may want to look at some alternatives like debt settlement. A debt consolidation loan may not be the right option for you especially if you do not have enough equity in your home. If you don’t own a home, a mortgage broker will not be able to help you consolidate debt. A few things you can do are talk to your financial advisor, organize your bills, make yourself a budget and stick to it, and talk to creditors individually about payment plans.

We’re Here to Help

With over 20 years of experience helping Edmontonions with their mortgage and debt consolidation needs, BMC Mortgages will be happy to work on a solution with you. If you think that a debt consolidation loan may help get you on the path to financial freedom, contact one of our mortgage brokers to see if it is an option for you.