How to Avoid Bankruptcy Using Debt Consolidation
Debt is a subject that not very many people like to discuss. It is embarrassing and awkward to tell family or friends that you have debt. What would be even worse is having to tell your loved ones that you are claiming bankruptcy! It is much easier and better for you to get your debt sorted out now when it is a small problem, than waiting until it is out of control and having to take drastic measures such as filing for bankruptcy. If you are struggling with debt today and know that if you don’t take care of it soon that bankruptcy could be in your future, then keep reading.
What is Debt Consolidation?
Debt consolidation is when you group two or more of your existing consumer debts into one loan, making one new monthly payment. You can do this by going to your bank and taking out a loan and using it to pay off all of your existing smaller debts.
Normally a bank will offer a lower interest rate on a consolidation loan than what you currently pay on credit cards or pay day loans. With paying a lower interest rate more of your monthly payment will go towards the principle of the loan rather than the interest. This can also mean that you could pay the full amount of what you owe sooner than you would have previously.
In order to take out a consolidation loan, you will first need to qualify. In order to qualify for the 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 large debt load, this may not be the right option for you.
If you are struggling with debt and you won’t qualify for a consolidation loan, there are other options available.
If you would like to learn more about your options give 4 Pillars Medicine Hat a call at 403-332-7361 and set up a free consultation. Our consultant will go over your situation with you and present your options to you for becoming debt free.