Are you struggling to pay off your debts, such as student loans? Are your credit cards maxed out and can you no longer qualify for a 0% credit card balance transfer offer? In general, you want to choose a debt consolidation loan plan that simplifies your financial life or reduces the cost of your debt, or, ideally, both. There are some debt consolidation loans Canada offers and these are available from lenders that can simplify your payment but do not significantly reduce the cost of your debt. You don’t want to choose those.
Explore Your Options
You need to explore your options. This is why it is so important to research your debt consolidation loan providers before making the decision. One of the biggest obstacles to debt consolidation is the risk you run in incurring new debt before paying off the consolidated debt. Therefore, close all old accounts or cut them off. You may have heard that closing multiple accounts can hurt your credit. Initially, your score may take a small hit, but this is nothing compared to the hit your credit score will take when you keep adding more debt to your bad debt.
Learn how debt consolidation affects your credit
If you got into debt due to unexpected circumstances, such as a medical bill or job loss, rather than a recurring cycle of making poor purchasing decisions, it is probably better to keep your accounts open and just cut up your cards so your credit score remains intact. How debt consolidation affects your credit will depend on the options you choose. Every time you apply for a loan, this is considered new credit, which means that a thorough investigation of your credit will be done. As a result, your score will drop. Some lenders allow you to apply for a debt consolidation loan without affecting your credit score, giving you an interest rate without having to do rigorous research.
With some lenders, those with the best credit will get the lowest rates. Many lenders also don’t charge fees for paying off your loan early; however, they could charge upfront fees of up to five percent on your loan. Some may send money directly to your creditors to increase your chances of successful debt consolidation. Your credit score will depend in part on your credit utilization, how much debt you have compared to the total amount of available debt. When all your credit cards are maxed out and you open a new one, this increases your available debt and lowers your utilization rate, which can actually help your score. However, your score will suffer whenever you have a high balance on any card. Transferring multiple balances to one card will cause your score to suffer, even if you have paid off all of your other cards.
Using debt consolidation loans Canada offers to pay off credit cards lowers your utilization rate and increases your score. Many debt consolidation companies will negotiate with your creditors on your behalf for lower balances and lower interest rates. Look for those who will get a written agreement from each of your creditors that outlines the terms of the agreement.