Getting Out of Debt: 4 Honest Questions to Ask Yourself

Debt counselling services can be a lifeline for those of us who have struggled with our personal finances at different times in our lives. There are many different companies providing these services and they have helped millions of Canadians restore their credit rating and get back some financial peace of mind. How do you know if you need help with your debt and credit? One suggestion is that if your loans or debts are more than 30 percent of your monthly income, you are in trouble. But not being able to pay your bills every month or having people call you about outstanding debt are two other pretty good signs that you need some help.

Debt counselling agencies and companies offer a number of programs. One of the main services is to offer to help you consolidate all of your debts into one loan. They work with you to build a monthly debt repayment plan that you can afford. Then they approach your creditors to get them to take these lower payments and to waive the additional interest that they might have gotten. Then each month you make that payment to the debt counselling firm and it gets paid out to your creditors on a pro-rated basis. There is a one-time fee to set up the loan and later small administrative fees that are part of your monthly payment plan.

That’s the basics of a debt consolidation loan, but there are many other things you should consider.

1. What is a debt consolidation loan?

A debt consolidation loan is a single loan that allows you to repay your debts to several or all of your creditors at once. They are most often negotiated on a client’s behalf by a debt counselling agency. At the end of the process you are left with only one outstanding loan. It saves your credit and a lot of additional interest payments. This option is attractive to people who have outstanding debts at a relatively high rate of interest like full-service credit cards or stores from retail outlets.

2. Who can qualify and what debts are eligible for this type of loan?

In order to qualify for a debt consolidation loan, you will need to have a regular income and be able to demonstrate that you will be able to manage the loan. That is to repay the loan and still continue to pay all of your regular monthly expenses and bills. Not all debts can be repaid in this fashion. For example, mortgage debts or previous debt consolidation loans are not eligible, but all credit card, utility and phone bills, as well as other consumer loans can be included in a debt consolidation loan.

3. Getting ready to discuss a debt consolidation loan

There are a few things that you need to do to get ready to talk about your debt consolidation loan. First of all, gather together all a full list of your outstanding debts to determine the total amount of your outstanding debt. Be upfront with your debt counsellor. They are there to help you get out of debt. Then answer all their questions truthfully about your employment status and monthly income. Give them the information they need to help you. One suggestion they may make is to destroy all of your credit cards right there and then. If you can, do it. It will make getting and staying out of debt so much easier.

4. Pros and Cons of a debt consolidation loan

Some of the advantages have already been noted. But one of the main benefits is that your creditors will appreciate your efforts and may even be willing to consider offering you additional credit in the future. On the downside, you will still owe a lot of money, even if paying it back gets a little easier. If you run into trouble and screw this arrangement up, there could be bigger problems down the road. But if you make your payments you will be on the road to financial peace of mind.