With most of Canadian homeowners also having debts of some kind, debt consolidation has become a popular way to manage debt and get out of it faster. A lot of debt consolidation options have become available due to this development, each coming with their set of pros and cons. In this article, we will give extra focus on debt consolidation options for people who are self-employed and/or may have a less desirable credit score.
Take Care of Debt with a Debt Consolidation Loan
You can pay off outstanding debts by getting a debt consolidation loan from a credit union, a finance company, a bank, or a lender. This type of loan will give you access to enough cash to take care of outstanding debts by paying them off and in effect, combining them in just one loan. With a debt consolidation loan, you will have only 1 monthly payment to pay, you’ll enjoy lower interest rates than most loans, and you’ll have a timeline of 2 to 5 years to pay-off the debt.
Interest for Debt Consolidation Loan
The interest rate for majority of debt consolidation loan options is often dependent on someone’s credit score. Another factor is if there is collateral for the loan. If a loan was taken against a collateral, the lender will have some form of reassurance that they won’t lose their money in the event that the borrower fails to make payments. Banks usually charge between 7-12% for interest and finance companies charge around 14% interest for secured loans and up to 30% interest for unsecured loans.
Homeowners can use their home equity as collateral to enjoy a lower interest rate from a bank, but it won’t be as low as securing a home equity loan from a private lender. If trying to get approval from a bank, expect that a co-signer may be required as well as having a strong credit score and a high net worth.
Try a Home Equity Loan or a Second Mortgage to Consolidate Debt
If you are a homeowner, you can consolidate debt by choosing to apply for a second mortgage, getting a home equity loan, or refinancing your mortgage through a private lender or a bank. If borrowing against your home equity, you’ll have a better chance of securing a substantial loan that will allow you to pay off debts and stand a higher probability of getting approved despite a bad credit score or shaky sources of income.
Note that compared to a primary mortgage, the interest rate for a home equity loan, second mortgage, or mortgage refinance will be a bit higher. There may be instances wherein you can get an interest rate that is close to your primary mortgage’s. Depending on your lender’s terms and due date, it is also possible to combine the interest for your primary and secondary mortgage. You may have to pay a significant amount in fees to make this happen but you’ll have less things to think about later.
Are you still unsure whether you’ll get a second mortgage, refinance your mortgage, or apply for a debt consolidation loan to take care of existing debts? Contact us and we will happily answer your questions and assess which options may be most appropriate for your needs.