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Debt Consolidation

Is Debt Consolidation Right for You?

In order to ease the stress of financial debt many people opt for a debt consolidation service. Debt is a difficult and stressful thing, especially when you have multiple loans and liabilities. Each liability may be a different amount, with a different interest rate that must be paid on different dates. These interest rates are often quite high and could be setting you back even further from your goals.

Debt consolidation is simply a personal loan that you use to pay off your existing liabilities. They are consolidated into one big loan that produces one big monthly debt payment. The best part is that these loans typically have an interest rate of 10% or less. Sounds great right? Not so fast! As is true with every transaction, it is essential to read the fine print first.

Here are some things you should consider before consolidating your debts.

Tracking Your Debt

The main reason to consolidate your debts is to have one larger debt payment instead of several. It makes your debts easier to track so you don’t have to remember different pay dates and amounts from different creditors. It is all in one place, therefore easing the process.

Interest Rates

Consolidation is a great way to eliminate the varying interest rates that you have on each of your liabilities. The average interest rate for a credit card being 15% with younger and first time credit card users receiving an interest rate that is over 20%. But, don’t let the convenience of one debt payment blind you!

You want the larger consolidated payment to be less than the total of your previous payments. This will depend on the interest rates that you currently have on all of your liabilities versus the interest rate that you receive for the bigger consolidated loan. So pay attention to the interest rates you will pay on your consolidated loan to make sure you’re getting the cheaper deal.

Your Credit Score

If the interest rate does make your loan payments more expensive than your original liabilities there are a few things you can do to get the loan that works for you. The first is to improve your credit score. The interest rate you pay on your loan is directly affected by:

  1. The strength of your credit score
  2. Your ability to prove that you have a steady income

If you have time to improve your credit score and get a steady job, do so. It will get you a better interest rate. However, if you are in dire straights and need debt consolidation now, then waiting to build up your credit score may not be something you can do.

The Lender

Another strategy you can use to get a better loan is to shop around. Different lenders at different banks have different criterion for their evaluations. As a result, you can expect to get a different interest rate from each one. Also, remember that smaller monthly payments does not mean you are saving money. If the length of your loan is too long, you still pay more money than you would have with your initial liabilities. So, read all of the fine print and the terms of each loan to find out if it’s a match.

Finding the right lender, and a loan that is the right fit is essential.

If you are still unsure it is a good idea to take your loan offers to a certified expert. A Licensed Insolvency Trustee (LIT) will help you figure out if you are on the right track. They will be able to advise you on the right steps to take so that you get out of debt and stay out of debt.

Don’t Forget!

Now that you have your consolidated loan it must be a relief, but don’t let that relief lull you into a false sense of security. Even though you now only have one payment, don’t feel like now your troubles have gone away. You still need to make this monthly payment and the stakes to pay are higher! Personal loans have some of the strictest penalties for late payments so you need to stay on top of your finances to make this work.

Spending Habits

Ultimately, the success of your debt consolidation depends upon you. As we said before personal loans have the strictest penalties for late payments, so making your payments each month is extremely important. You need to have the necessary resources to make consistent payments. If you do not have the resources to be consistent, debt consolidation may not be right for you. Instead visit an LIT to figure out what debt relief strategies would be the right fit for you.

Speaking of spending habits. Once you have consolidated your debts you need to change your spending habits. Paying off your credit cards and other liabilities is only a good thing if they remain paid off. If you start racking up more debt on your credit cards while you still have this consolidated loan to pay off you will end up in more hot water than you were in before.


To get started make yourself a checklist of all of the documentation that you need:

  • Personal Identification (driver’s licence, health card, etc.)
  • Employment and Income (Proof of income, notice of assessment etc.)
  • Housing Information (Rent or mortgage information)

Figure out what your credit score is, your credit history, exactly how much money you need and your timelines. Once you have gathered everything you need it will make it much easier to shop around and potentially fill out an application if you decide this is the best thing for you.

There are many Debt Consolidation Services in Ontario but before you dive in headfirst remember that it is not the only choice you have. In addition, it may not be the best choice you have. Finding the right lender is difficult, so to put your mind at ease, first sit with an LIT to make certain that you are taking the right steps toward financial freedom.

An LIT is an accredited professional that is authorized to administer government-regulated insolvency proceedings. They can talk to you about your financial situation and set you on the right course to achieve your financial goals.

To get a second opinion before you apply for debt consolidation schedule an appointment with our team at Adamson & Associates.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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