If you can’t repay your debts on your own, the next option to consider to avoid bankruptcy in Canada is a debt consolidation loan. The concept is simple; getting the loan is the hard part.
There are two significant benefits to getting a debt consolidation loan: you will only have one monthly payment, and you will probably reduce the interest rate you are paying. As a result, your total monthly payments are lower, and you pay off your debts months, or even years, faster.
Here’s an example:
You owe $15,000 on three different credits, and you owe $500 to a payday loan, and $1,500 to the government for taxes from last year. You are paying 19% interest on the credit cards, and an even higher rate on the pay day loan.
You get an $18,000 debt consolidation loan from your bank, and you use the money to pay off your credit cards, payday loan, and back taxes. Now instead of having five different debt payments each month, you only have one payment. Even better, the interest rate on your debt consolidation loan is much lower than on your credit cards and payday loan, so more of your monthly payment is going towards your debt, which will get you out of debt faster.
The loan makes sense, but will you qualify? That’s the hard part. Banks generally only lend money to people with a good credit rating, so you may not qualify, or they may require security (like a car or a house), or a co-signer.
There’s only one way to find out if you qualify: take your budget, your list of assets, and a list of your creditors (the people you owe money to) to the bank, and they will determine if you qualify for a debt consolidation loan.
If they approve your loan, make sure that they are charging you a reasonable interest rate (there’s no point in paying a higher interest rate on your debt consolidation loan than you were paying on your credit cards!), and make sure you can afford to make the payments.
If you don’t qualify, or if the loan is too expensive, it’s time to consider other strategies to avoid bankruptcy.
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