When you need debt help, could debt consolidation be the answer?
If you are finding that your finances are in a poor state and you are in need of some debt help, what is the answer? You may have heard of debt consolidation before, but do you know what it entails? Today I would like to explain what debt consolidation is and how it can be a help to you and your debt.
What is Debt Consolidation?
Debt consolidation is simply taking out a big loan to pay off two or more of your existing smaller debts. Why would a person want to take out another loan when they are already struggling with debt? Normally a bank will offer a lower interest rate on a consolidation loan than what you are currently paying on credit cards or pay day loans. With a lower interest rate you are able to put more of your monthly payment towards the principle, rather than making interest only payments each month. This can also mean that you could pay off your debt sooner than you might have, had you kept your debts separate.
Will you qualify?
In order to qualify for a consolidation loan, you will need to have good credit. You will also need to have a long enough credit history to prove to the bank that you will make good on your end of the bargain. A bank will also look at your income to ensure that you will be able to afford the new payment. If you were previously making minimum or interest only payments, then your new consolidation loan payment may be much higher than what you are paying now. If your income is low, then this may not be an option that will be in your favor. Another thing to consider is how much debt you have in comparison to your income. If you have too much debt, a bank may not approve you to take on more debt. Normally banks will only allow you to borrow up to 40% of your annual income for a consolidation loan. So if you have a lot of debt, this may not be the option for you.
Is debt consolidation right for you?
If you have 2 or more consumer debts that have high interest rates, you have good credit and enough income to make the payments, then a consolidation loan may be right for you. If you have a lot of debt in comparison to your income, have issues with your credit or have low income, then debt consolidation may not be the option for you.
If you don’t qualify for a consolidation loan, but are in need of debt help, give 4 Pillars Medicine Hat a call at 403-332-7361. 4 Pillars specializes in assisting individuals and families who are in financial crises. We can help you reduce your debt by as much as 80% and 97% of families who come to us successfully complete the plans we create and become debt free.
