Getting out of debt when one has bad credit is one of the most common issues faced by Canadians these days. It may be quite easy to get out of debt if one has good financial records but for those with bad credit, this is a huge challenge to overcome.
Is it Smart to Get a Loan to Pay for Debt?
Most people who have bad debt are in such a situation because they’re strapped for cash; hence, the way to pay off a debt for them is to get a loan. This can be a good idea but can turn out to cause more problems if the new loan is more difficult to manage than the existing debts in the first place.
To effectively use a loan to pay for debt, the smart move is to consolidate high-interest debt with funds from a low-interest loan. This way, it will be possible to get out of the bad-debt-cycle that can result in bigger problems down the road if not dealt with promptly. The idea is to take the long-term approach in handling bad debt and to avoid falling into short-term band-aid solutions that only serve to make things worse later. Loans that can work for this purpose are second mortgages or home equity loans.
Are you Really in Debt?
If you’re a homeowner, you may actually be better off financially than you think. The reality is that your home, or rather, your home equity is a huge asset that can get you out of debt if used properly. You may think that you’re in debt but if you look at the big picture, you could not be in debt at all.
To pay off bad debts with your home equity, you need to assess your real financial situation by getting a credit report and listing down all your assets and debts. Find out how much you truly owe and your current credit score to give you a good starting point to determine which possible solutions can be the best for you.
Once you have a list of your debts and assets, take a close look at your credit report and your list to find any mistakes as well as prioritize which debts need more of your attention.
Plan Ahead to Get Out of Debt
You need to have a long-term plan to pay off debt to avoid reborrowing in the future. Your plan should include what percentage of your current income will go into paying debt as well as how to effectively use a loan to consolidate debt if applicable. If you’ll be using your home equity to pay for your debt, you need to look into which type of home equity loan will help you achieve your goals.
Remember that as you pay your debt with your home equity, you should do so in a way that will also help to fix your credit score. We can guide you with this at Homebase Mortgages. Call us today and we’ll talk about the details of getting a bad credit loan or using your home equity to pay your debts with you!