How To Consolidate My Debts in Vancouver

How To Consolidate My Debts in Vancouver
How To Consolidate My Debts in Vancouver
Article Overview

If you’re having trouble managing various bills and feel like you’re drowning in payments every month, debt consolidation may be just what you need. Consolidating your debts entails consolidating them into a single loan, which makes them easier to handle and may save you money in interest and fees. We’re here to help you explore the many debt consolidation alternatives available in Vancouver.

In this article, we’ll go over the fundamentals of debt consolidation in Vancouver and provide you with some pointers to make the process go as smoothly as possible. So, let us begin and take the first step toward a more manageable financial future!

How To Consolidate My Debts in Vancouver: 10 Tips

Debt consolidation is an excellent method to streamline your finances and perhaps save money on interest and fees. But where do you begin? It can be difficult to make decisions when there are so many options and aspects to consider. That is why we have put together this guide with 10 tips to help you manage the debt consolidation process. We’ve got you covered, from understanding your options to selecting the best lender. Let’s dive in:

1. Get a debt consolidation loan

Some banks, credit unions, and other financial institutions offer debt consolidation loan options. You can check with your bank to see if this is possible. When you approach any of these institutions, the consolidation loan they grant you may be a secured or unsecured loan.

For an unsecured loan, most banks and credit unions are only willing to lend you around 10% of your net worth which is your total assets minus your total debts. So for example, if you request a consolidation loan of $10,000 but you have a net worth of $10,000, your creditor may only be willing to offer you a consolidation loan of $1,000, which is only 10% of your net worth. Depending on the circumstances of the economy, some creditors may be willing to give you more, but it is usually on rare occasions.

For secured loans, what will determine how much consolidation loan you get is the value of your collateral. This means that the creditor may lend you the maximum amount of money based on the value of your asset. So if you have a brand new car without a loan on it or you just bought a house without a mortgage on it, then the creditor may lend you up to the value of the asset as a debt consolidation loan. You can always combine assets and use them as security for the loan.

One important thing to note about a debt consolidation loan is that you should have a monthly spending budget so as to avoid getting into further debt while trying to settle an existing debt

2. Credit card balance transfer

Credit card accounts are known to offer attractive promotions that you can maximize to consolidate your debt. This is usually suitable for credit card debt. You can pay off your old credit card debt with a new card. This also amounts to consolidating your credit card debts. 

The catch with this is that if you are able to do a credit card balance transfer into your new credit card, if you are lucky, with an interest rate as low as 0%. Also, this low-interest rate usually has a limited promotional period, say up to 12 months. 

Therefore, if you are not able to complete your debt payment before the end of the promotion, you may be stuck with the normal credit card interest rate. If you are sure that you will be able to make the total repayment on time before the end of the promotional offer for a low-interest rate, a credit card balance transfer is a good way to consolidate your debt.

3. Home equity line of credit

A home equity line of credit is the available amount of credit you have access to after you have paid off a certain amount of principal of your home, or you have appraised your home for a higher amount. However, in order to have a home equity line of credit, the mortgage needs to be set up in a certain way. Your home equity can be used to settle your debt situation. Depending on how much equity you have in your home, you can borrow against it and use the money you get from it to pay off your debts. However, before you increase your mortgage in order to consolidate it with your debts, learn more about your mortgage and home equity options so you can make a more informed decision.

The advantage of exploring the home equity line of credit to consolidate your debts is that mortgages offer a lower interest rate compared to other loan interest rates. Mortgages can also be amortized over a long period of time, some as long as 30 years.

4. Refine your debt payment strategy

This can be used to support your debt consolidation. Once you have been able to consolidate your debt payments, if they are still in more than one payment, you may have to prioritize which of the debts you can afford to pay first. You can use any of these strategies:

Pay off the smaller loans first

Paying off the smaller loan first will enable you to reduce your overall debt load. The smaller loans are usually easy to clear, and clearing them will also give you a sense of accomplishment over some progress and initial success.

Pay off the ones with the highest interest rates first

This is another strategy you can use. It is recommended to tackle the loans with higher interest rates first and get them off your back. This is because when debts with higher interest rates accumulate, it makes it difficult to finish paying off a loan. Therefore, before you can use this strategy, you must ensure that you can pay off the debts as soon as possible so that they will not be a burden in the long run.

5. Discuss with your creditors

Most debtors are scared of discussing their debts with their creditors. However, this may be a solution for you. One thing that should encourage you to speak to your creditors is that it is in their best interest to help you find a way to pay off your debt as early as possible. If you are struggling to make the minimum payments on your debts (line of credit or credit card debts), you can always try the option of talking to your creditors. Creditors in Canada usually have programs that can grant you a payment break or lower your minimum payment. Ensure that you fully understand the financial implications of whatever agreement you reach with your creditors.

6. Speak to your family members

After exploring other options and not being able to make any headway, talking to friends and family is an option you can consider. Friends and family may be able to rally around you to raise the money you need to pay your consolidated debts. However, don’t go asking with an entitlement attitude, as everyone has their financial obligations. Besides, loaning money to a family member has its risks because anything can happen, such as the family member losing his/her job and making it difficult to pay it back. This may not encourage your family members to loan you the money you need. If you are lucky enough to have a friend or family member that will loan you money to pay off your debts, ensure that you honour your agreements with them.

7. Talk to a financial expert

Speaking to a financial expert can go a long way toward giving you a clearer picture of the options you have for consolidating your loan. A reputable financial expert will explain all the options available and advise you of the financial implications of each decision. Many financial experts provide a complimentary first meeting that is usually confidential and objective.

‍Financial experts also know about debt management and the orderly payment of debt programs that can help you consolidate. These programs can help you consolidate your debts into one monthly payment or reduce interest rates in order to help you pay your debts faster. Learning about these programs from financial experts will improve your understanding of how to manage your money and avoid putting yourself in this kind of situation again.

8. Selling assets

If you have tried the various options above but have not had success, you can also try some other options to help you pay off your debts. You may consider selling off some of your assets, like your car, vacation home, boat, etc. The money you make from the sale can be used to service your debts. 

9. Make lifestyle changes

You can also consider downsizing your lifestyle in order to save money and have the extra cash you need to pay off your debts. No more window shopping, eating out, or buying luxury items. You can limit your spending by using your debit card instead of your credit card.

10. Make extra income

You can also take on extra jobs and gigs that will give you extra cash that you can use to pay for your debts. There are many ways you can make extra money in Vancouver. You can try things like selling items online, food delivery, teaching a skill you are good at, or simply taking on a part-time job. Increasing your income will go a long way toward helping you pay off your debt sooner and even grow your savings.

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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