July 24 2018
All Canadians take on some form of debt in their lives, and it is seemingly possible that you as an Albertan have more loans on your head than other province residents. You may have borrowed from a few different companies—like a credit card company (or two), car loan provider, and bank. These lenders are likely charging you different interest rates, and depending on your type of debt, these rates can be well into the double digits. Your situation may seem desperate, but don't despair: debt consolidation may help you get back on track.
While the word debt consolidation is a great idea, it is always a good thing to go for HELOC. Now you may be thinking what it means, so let us break it for you:
If you own your own home, have established some equity in that home (meaning your home's value is greater than the amount you owe on it), and you need to borrow some money for a big purchase or to pay down other debt, then a Home Equity Line of Credit (HELOC) may be a good option for you. This is because HELOCs generally feature lower interest rates than other forms of borrowing, like traditional lines of credit or personal loans.
Now let’s look at how you can pay less and still keep things running with these 3 tips around debt consolidation:
1) Less Interest
If you have a loan of $10,000 in debt, and have a 18.5% interest rate, and pay $200 per month, only $46 is going towards the loan and the rest is going towards the interest. This set of a payment procedure will drain every dollar from your bank account and would take 8 years to pay off with $9261 as interest.
With debt consolidation, you could take out a $10,000 loan with a 9.5% interest rate and use that loan to completely pay off your current dues. Sticking with your $200 payments, you could be debt-free in a little over five years, paying about $2,700 in total interest.
If you've built up debt with a few different lenders, it may be hard to stay on top of your payment due dates and track your progress (or lack thereof). By consolidating your debts, you'll have only one loan to pay and one number to track, making it easier to create a realistic repayment plan.
With a budget you should also have a strategy for covering your expenses without resorting to credit cards or high-interest loans. A lower-interest loan may help you pay off your credit cards, but if you rack up that credit card debt again, you'll be back where you started—and with an extra loan to worry about.