What Is Debt Consolidation? The Real Truth Exposed

When a Canadian finds themselves in a situation where their debts have become overwhelming there are very few real options to improve their lot. You will find claims everywhere of ways to cut your debts and be able to pay back pennies on the dollar of what you owe. Don’t believe it! There is only one way to be free of the money that you owe and that is to pay it back.

What Are My Debt Options?

There are three things you can do when you have outstanding consumer debt:

1) You can either negotiate with those you owe or enlist the assistance of a debt settlement company.

2) Approach a bankruptcy trustee and either take consumer proposal or an outright bankruptcy.

3) You can work with your Ontario Mortgage Broker and complete a simple debt consolidation.

The Truth Won’t Hurt You

Without beating a dead horse here – there are very few positives to the first and second options. Debt settlement more often than not does not accomplish what it promises and you are still charged the fees and consumer proposals are legally binding for longer than the life of your average pet. Debt Consolidation is by far the best of the three. Now understand it will not solve your debt problems but it is the best first step in order to get you moving in the right direction. These are the reasons why:

Removes Negative Effects On Your Credit Bureau

This is by far the most important difference between the first two options and a simple debt consolidation. The most important step in getting your financial house back in order is to stop the bleeding. With debt settlement the strategy is to stop making payments in the hope that your creditors will be more willing to negotiate. You are the only one who loses when your credit rating gets destroyed. With a consumer proposal – the second you file this document with the courts – all of your credit accounts automatically become an R9 rating which is the worst with no hope of improvement until you are discharged 3-5 years later.  Conversely with a simple debt consolidation – the new loan pays out all the bad debt and you have an immediate positive effect on your credit bureau.

Staves Off Financial Disaster

The last thing anyone wants to do is to make a decision that in hindsight ended up being a mistake. Another place where the difference is apparent is in the aftermath of debt settlement or a consumer proposal. You may feel this was a smart decision in that someone else is helping you to deal with your debt. The part you may or may not be aware of is that as time progresses you are moving closer to financial disaster without  improvement. In both scenarios the parties that ‘assisted’ you are continuing to get paid and you are moving no closer to a permanent solution. How is that for a definition of  financial insanity? In debt settlement – the company gets paid regardless if they are making any progress towards paying off your debts. In a consumer proposal – the bankruptcy trustee makes a monthly amount for the duration of the contract. Again the other side of the coin here is that with a simple debt consolidation the Mortgage Broker gets paid once for helping you restructure your debt into a more efficient vehicle.

Improves Cashflow

And to further the last point – if there is another party getting paid each month you are trying to make traction on your debts – it makes it that much more difficult to get ahead. One of the areas where a simple debt consolidation makes a big difference is in improving your monthly cashflow – giving you the breathing room you so desperately need. With those who are suffering from bruised credit or a loss of income – there are still available interest only loans to keep your borrowing costs low and help you to put aside enough to deal with any emergency that arises while you are rebuilding your credit.

So what is the truth about debt consolidation? The bottom line is that it is hands down the best way to turn a bad financial situation around. When you pay out your debt with a new loan you remove the negative effect on your credit bureau, stave off financial disaster, and improve your monthly cashflow. This is the easiest, quickest, and most cost effective way to get bad debt into a better spot and start working towards paying it off. Have questions about your debt? Leave me a note below and I will answer promptly.