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15 Jun

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Debt is like an infection; it sneaks up on you. It overwhelms you, and then you have a problem. Your financial health will suffer because you have payments to make to several different service providers, all at varying rates. The interest on the debt is where the problem begins. Financing is an easy option for a borrower or a purchaser, but the fine print is where the truth becomes apparent. A debt consolidation loan in Canada can relieve the financial stress of the debts you are carrying, and in the process, it will create many benefits.

To begin, let’s talk about two things that are intertwined: a debt consolidation loan, and how it will improve cash flow. These two items are mutually dependent on each other to create financial freedom.

What is cash flow?

In the simplest terms, cash flow is the money you have left at the end of every month, minus expenses. That is money for investments, savings, or cash towards extra debt payments to create financial relief. When your debts from a student loan, a credit card, or an auto loan demand all your income, you have nothing left and no cash flow. Over time, calamities can engulf your financial position. For example, the loss of a job, reduced income, illness or injury, or an economic downturn can have a profound impact on your financial situations. Managing cash flow can blunt some of the burdens when you are prudent with your financial management.

Debt Consolidation: The Nuts and Bolts

Consolidating debts takes many small monthly payments—with varying interest rates—and combines them into one monthly payment. It involves taking out a significant loan at a low rate of interest and eliminating all the nagging small payments that seem to take forever to pay off. The most important thing when applying for a debt consolidation loan in Canada is the need for good credit. If you don’t have a good credit score, a debt consolidation loan will be difficult, if not impossible, to obtain.

When shopping for a debt consolidation loan, be aware that there are two types: secured and unsecured. In the already mentioned scenario, poor credit will disqualify an individual for an unsecured loan.

Demonstrating creditworthiness is essential. A regular income and balanced expenses, which are paid on time, will improve your chances of obtaining an unsecured loan.

For people who have bruised credit, a secure debt consolidation loan can be the financial life raft they need to navigate choppy economic waters. The biggest asset most people possess is their home to use as collateral to obtain a secured debt consolidation loan. Using the equity you have accumulated in your home is something that will help lenders assess your financial situation and provide them with the opportunity to extend the loan. The debt consolidation loan is similar to a second mortgage and creates a risk-free situation for both lender and applicant.

The Benefits of a Debt Consolidation Loan

Reducing financial pressure is what a debt consolidation loan is designed to do. The advantages that come with refinancing your debts are numerous, and the result will extend your purchasing power in the long run.

Improved Credit Score

  • Not many people understand how important it is to have a good credit score. A good credit score is the difference between getting the things you want on a payment plan and not. Reducing debt improves your credit score and increases financial stability.

Financial Stability

  • Incorporating your small debts into one monthly payment allows for financial planning that can empower people to make long-term financial decisions that improve their lives.

Lower Interest

  • Accessing a debt consolidation loan permits the borrower to lower interest payments. Borrowing money against your home will see interest rates of less than 3%. By comparison, credit card debt (19.9%) or a car loan (15%) represents savings and create increased cash flow.

A Quicker Timeline for Debt Payoff

  • Using a debt consolidation loan to pay off your debts is beneficial because it will reduce the duration of the loan repayment period. Generally, it takes 2-5 years to pay off a debt consolidation loan. This is as opposed to a car loan that runs for 72 months, or a credit card debt that multiplies every month if you don’t pay enough of the accumulated debt.

Peace of Mind

  • Consolidating your debts provides a strong foundation to execute in other areas of your life. You have the confidence knowing that your debts are well-managed, and you won’t lie awake at night worrying about making the next payment. Also, you aren’t robbing Peter to pay Paul, juggling payments at the end of every month.

Increase the Equity of Your Home

  • Borrowing money to make home improvements is a worthwhile investment. Updating or upgrading essential areas of your home like the roof or windows will have additional savings and create increased monthly cash flow. The improvements also create a higher value for your home when it comes time to sell.

There are many ways to finance a debt consolidation loan, and there are specific lenders who work in this area. Before you ask your bank for help, be advised that they work on strict requirements. The bank may not have the support available when you need financial assistance.

A mortgage broker is your best friend when it comes time to obtain a loan. It starts with access to lenders; most, if not all brokers, have a roster of lenders to help in any circumstance. A broker will shop around for the best price for customers—something a bank can’t do because it’s married to their rates.

In short, a debt consolidation loan will improve your cash flow, reduce your monthly payments, provide financial peace of mind, and reduce pressure to meet monthly obligations. Talk to a mortgage broker when you need a financial consultation, and see how they will help you out of your financial crunch.

To learn more about the process of securing a debt consolidation loan, call Mortgages Mortgages at 866-307-0747 or contact us here.

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