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Consolidation Loan Canada - Taking out a Consolidation Loan in Canada

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Debt consolidation loans were once only popular in the U.S., where personal debt has become a national epidemic, but many in Canada are beginning to find themselves also in situations of enormous debt, unsure how they are going to pay it all back.

Taking out a consolidation loan in Canada can be a legitimate, practical alternative to declaring bankruptcy in Canada. However, consolidation loans in Canada do have some disadvantages, so it is important to understand both the advantages and disadvantages before committing.

A consolidation loan is a type of personal loan that is used to pay off your previously existing debt from multiple creditors. This allows you to make one simple monthly payment that may be more affordable than separate payments on individual debts.

Advantages of a Consolidation Loan in Canada
There are several possible advantages in getting a consolidation loan. These advantages may not all exist in every situation. It is up to you to determine which advantages exist and how they weigh against the disadvantages. Here are some of the possible advantages:
• You will have only one payment to make each month, greatly simplifying your monthly bill payments.
• The interest rate on your consolidation loan may be lower than the interest rate on your existing debt, such as that on credit cards. This will allow you to either reduce your monthly payments or pay off the debt faster.
• Even if the interest rate is not lower, you can reduce your monthly payments to get by hard times by taking the loan out for a longer term.

Disadvantages of a Consolidation Loan in Canada
There are some possible disadvantages to consolidation loans that could make your situation worse or prevent you from getting the loan altogether:
• Paying off all of your debt, especially that on your credit cards, can tempt you into using them again and racking up even more debt. This means you will not only have to pay back your consolidation loan, but you will have to pay off your credit cards again. If you get a consolidation loan, it is recommended that you cancel your credit cards to avoid the temptation to use them again now that their balance is back to zero.
• Consolidation loans in Canada often require you to put up some form of collateral. Many Canadian banks require you to put up real estate or equity in your home. The problem with this is that you now risk losing your home to foreclosure should you not be able to pay back your consolidation loan. This is often a much worse situation than simply having a large amount of debt.

To qualify for a consolidation loan in Canada, you must first visit a lender. This is usually a bank, but other lenders exist, including lenders specializing solely in consolidation loans. The lender will ask you to provide them proof of your monthly budget. This includes your income and all of your expenses. This usually takes the form of pay stubs and billing statements. You will almost assuredly need some form of collateral. You may be able to get by without collateral if you have someone who will cosign the loan with you. Before taking out a consolidation loan, you should understand that Canada has other options that may work better for you. Understanding which option is best for you often requires a consultation by a licensed bankruptcy trustee. You can find several in your area who will provide you with a free initial consultation.

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over 1 year ago

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