Debt consolidation is a financial strategy that many individuals in British Columbia (BC) consider to manage their multiple debts more efficiently, or indeed to make it easier to repay their debt. The most popular objectives of debt consolidation include simplifying multiple debts into a single payment; repaying debt at a lower interest rate; and structuring debt into a plan with a mission to pay it off. BC, like many other provinces in Canada, offers various options for debt consolidation, providing individuals with a chance to regain control over their financial situation. Some debt consolidation options are more advantageous than others. Understanding these options can empower you to make informed decisions regarding your debts and pave the way toward a more stable financial future. In this article, we share all you need to know about debt consolidation in BC.
What is debt consolidation?
Debt consolidation is the process of merging multiple debts into a single, more manageable loan or line of credit. Instead of dealing with numerous creditors and varying interest rates, Canadians can streamline their payments by consolidating their debts. This method aims to simplify the repayment process and potentially lower interest rates and monthly payments.
Are there different types of debt consolidation?
Put simply, there are a few different types of debt consolidation – borrowing and non-borrowing options. The type of debt consolidation best suited to you will depend on your own unique goals and financial requirements.
Debt consolidation loans and borrowing options
Borrowing, bank-based loan solutions for debt consolidation in BC include the following:
- A debt consolidation loan from a lender who provides funds for you to repay your individual debts, condensing the various different balances into a single, new loan that you repay with interest.
- A home equity consolidation loan, where you borrow against your home equity. This is also sometimes referred to as a second mortgage, or refinancing your mortgage.
- A balance transfer from a line of credit, an overdraft, or another credit card with a lower interest rate to repay higher interest debts.
It is important to note that borrowing options for debt consolidation can be challenging in terms of their eligibility criteria. Often, you will need to pledge an asset as loan collateral, like your home or car. In some cases, they may require a co-signer. You might also need a high income or a good credit score to qualify. If you do not qualify for a borrowing option, a non-borrowing alternative might be a better solution as a journey to debt relief.
Non-borrowing debt consolidation options
Not everyone will know that non-borrowing options for debt consolidation in BC exist. You do not always need to take on a new debt in order to consolidate your debts. Options for non-borrowing debt consolidation in BC include the following:
- A consumer proposal – a legal form of debt settlement, a consumer proposal is the process of proposing an affordable percentage of your debt to your creditors. A popular bankruptcy alternative, consumer proposals often allow you to reduce your unsecured debt by up to 80% and you make just one manageable monthly payment. They must be filed by a Licensed Insolvency Trustee – at Spergel, we have a 99% acceptance rate on any consumer proposals we file. Advantages of consumer proposals include protection from creditors, and an end to interest payments. Consumer proposals are the only legal options for debt consolidation in Canada that can include debts including tax debt and student loan debts (over seven years old). A Licensed Insolvency Trustee at Spergel will work with you to review your financial circumstances and create a proposal for your creditors that is affordable.
“I highly recommend the SPERGEL Team! They were very knowledgeable, professional, and helpful in guiding me through the consumer proposal process. The team was attentive to my needs and concerns, answering all my questions and putting my mind at ease about the entire process. They made sure that I understood every step, and they worked tirelessly to ensure that my proposal was approved by my creditors. Thanks to their excellent work, I was able to reduce my debt and finally gain financial stability. I couldn’t have done it without them! So if you’re looking for a trustworthy and reliable consumer proposal company, look no further than SPERGEL!Date of experience: 02 November 2023. See more of our client reviews.
- A debt management plan – debt management plans are typically created by non-profit credit counselling agencies. Although not legally binding, they can help you to consolidate different types of debt. A debt counsellor or non-profit credit counsellor will review your financial situation and arrange with your creditors a payment plan for your eligible debt. While not guaranteed, they might be able to secure an interest freeze too. Debt management plans are not legally protected, creditors do not need to oblige, and you will need to repay 100% of your debt, plus counsellor fees. Debt management plans have the same consequences on your credit report as a consumer proposal, so it is well worth speaking to a Licensed Insolvency Trustee before you proceed.
What to consider before opting for debt consolidation
Debt consolidation in BC is a practical solution for individuals overwhelmed by multiple debts. By exploring the various debt consolidation options available and considering the associated factors, you can choose the most suitable method to regain financial stability. You should weigh up the pros and cons of each option, seek professional advice from a Licensed Insolvency Trustee, and commit to responsible financial management to achieve long-term debt relief. Here are a few things you should review before you move forward with a form of debt consolidation:
- Interest rate – you should make sure that if you take out a new loan or credit option, it has a lower interest rate than the existing debts you have.
- Fees – you should make sure you clearly understand any fees associated with the debt consolidation process, including closing costs or balance transfer fees.
- Credit score impact – debt consolidation can affect credit scores. Managing payments responsibly can help to improve your credit health.
- Good financial health – when exercising responsible financial habits, debt consolidation can be effective. Avoid taking on new debts while paying off your debt consolidation loan.
- Eligibility – when qualifying for debt consolidation in BC, you will likely need to have a fairly strong credit score and debt to asset ratio if you are looking to secure bank based consolidation. Lenders could also ask for a cosigner to guarantee your loan, or for you to pledge an assets as collateral like home equity or a car.
- Affordability – ensure you can realistically afford your monthly consolidation payments and remember that most debt consolidation options (aside from a consumer proposal) cannot cover all of your debts. If you require a reduction in your debts, a consumer proposal might be the best option for you.
On the contrary, non-borrowing forms of debt consolidation like a consumer proposal do not require you to have a good account standing or credit score in order to be eligible, and you will not need to pledge an asset as collateral.
While many British Columbians struggling with unmanageable debt might think that bankruptcy is their only way to debt relief, this is far from the reality. Debt consolidation in BC is a great way to simplify your debts, and consumer proposals can reduce your debts by up to 80%. At Spergel, our experienced Licensed Insolvency Trustees will review your finances and advice you on the best way to tackle your debts. Reach out today to book your free, no obligation consultation.