Debt consolidation is an option that allows you to merge all your loans into one. You can merge your credit card balances, overdraft balances, payday loans, bills, and other smaller loans into one. This is a good thing because, in reality, it is hard to merge all your small loans into one because the interest rates and repayment terms are different. Consolidating your loans requires that you get a new, larger loan that you use to pay off all your other loans. There are several options for loan consolidation. Make sure you understand the pros and cons of each source before proceeding.
Pros of debt consolidation
In Canada, the best interest rates on debt consolidation loans are from credit unions and banks. Factors that will affect your interest rate include the following:
On average, the interest rate on debt consolidation loans is between 7% and 12% whereas the rate for finance companies is 14% on secured loans and 30% for unsecured loans. There are various minimum requirements you have to meet to qualify for debt consolidation loans from banks. Having a good co-signer will significantly increase chances of qualifying.
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