Debit/Credit Card Debt Consolidation Loans

If you are in debt, you are not alone. Studies indicate that most Canadian households are in debt, and the most common type of debt is credit card debt. If you are seeking a way of gaining control of your debt, you may consider debt consolidation. What is debt consolidation? This refers to combining your multiple debts into a single loan. The main aim of debt consolidation is to reduce the interest owing to debts. If you consolidate all your loans into a single loan, you will reduce the number of loan fees and interest. Most of the money you pay will go to reducing your principal amount, making you clear the debt faster. At YorkCredit, we can help you to assess and calculate your debts and recommend a suitable debt consolidation trustee or institution in Canada. You should not allow your credit card debt to crash you. You may feel anxious whenever you think of your ever-rising credit card debt. Due to the high credit card interest rates, most people are only able to make minimum payments every month. The principal amount does not go down but keeps rising. It may seem like there is no way out. The good thing is that with debt consolidation, you no longer have to feel trapped in debt. With debt consolidation, you will only be paying one installment every month instead of paying multiple installments. With a payment of one installment per month, managing your finances is easy, and you are not likely to miss on a payment. This helps to maintain a good credit history.

How do you go about consolidating your debit and credit card debts? The first step entails applying to an eligible institution or trustee. For instance, you may make an application in a bank or in a credit union. You may apply for a personal loan that does not require collateral. Upon loan approval, you can use the proceeds of the loan to clear your outstanding debit and credit card debts. You will then continue making monthly payments for the new loan in accordance with the agreed terms.

Other than enjoying one monthly payment and lower interest, debt consolidation also gives you the option of paying a lower interest rate per month. You can choose the option of a longer payment period because this helps lower your monthly installments. You will no longer have to channel all your monthly income into debt payment.

You will no longer receive debt recovery phone calls from creditors.  After the consolidation of your debts, all your creditors receive their payments, and you will not risk ruining your credit rating. If your credit rating was already ruined, consolidation might help you rebuild your credit rating. You will enjoy a peaceful life because you will no longer receive pressure from creditors.

Which loans are eligible for consolidation?  Some of the eligible loans include credit card debt, public utility debts, and consumer loans. You may not be able to include long-term debts like mortgage into the consolidation plan. Typically, you consolidate current debts. A credit counselor can help you determine whether the consolidation will be beneficial to you.

Debt Consolidation using Home Equity Loan

Home equity loans are bank products where the bank, finance companies or sub-prime lender lends you money against the portion of your home you still own after taking on a mortgage. As an example, if after evaluation the bank determines that your home is worth $500,000 and you have a mortgage of $450,000, the bank will take your portion of the home (called equity) to be $50,000. Home equity loans also go by the terms “refinancing a mortgage” and “getting a second mortgage”.
If you are looking to consolidate your debt, you can use your home equity loan to ‘buy off’ smaller loans. This gives you unparalleled convenience since you will only have one monthly repayment to make. A home equity loan for purposes of debt consolidation should not be confused with a home equity line of credit (HELOC). A home equity loan is a lump-sum loan while a HELOC is a revolving credit that has an adjustable interest rate.
To qualify for a home equity loan, the Loan to Value ratio (mortgage value/property value) should not be more than 80% (or more than 90% if you have mortgage default insurance).

Applicable Interest Rates

Some banks and other mortgage lenders will give you the same interest rate for the second mortgage as you got on the first mortgage. The argument is usually that the factors considered when you were getting the first mortgage have not changed. However, not all lenders do this and you may be forced to pay a higher interest on your second and subsequent mortgage.

If you have to pay a higher interest rate, ensure the due date for the first and the second mortgage correspond. This way, you can combine them at the best possible interest rate from the bank once time for renewal comes.

In Canada, mortgages have been on the decline since the early 80s. After a high of 20% in the early 80s, they have ranged between 2% and 5% since then. Over the past 60 years, the average 5-year mortgage rate has been 8.95%, meaning you should ensure you can afford at least 9% interest for a long-term home equity loan.

• You can negotiate for a flexible repayment arrangement, something that may not be possible with the other smaller loans you want to consolidate. If you are struggling to make monthly repayments, you can always reduce your premiums by extending your amortization (time required to pay back the loan).
• The interest rates offered by banks are typically very low.
• You will get immediate access to cash once your home equity loan is approved, allowing you to pay off high-interest debt such as credit card debt.
• You are not limited on what you can use the money for, meaning you can even use it for home renovation, paying off bills, and even going on vacation.
• Paying off bad debt will help your credit score.
• Your credit score or previous bankruptcy filings are not a major factor since the lender will get your equity in the home if you are unable to make repayment (your equity acts as collateral).
• The current rates between 2% and 5% are historic. This means we cannot rely on them going further down. The rates can also go up without notice. Home equity loans, therefore, have an element of risk since the interest could go up any time.
• The amount you qualify for is dependent on your equity. This means this loan consolidation method will not work if you have a mortgage that is near in value to the value of your home.
• Finance companies and sub-prime lenders have higher interest rates. If you do not qualify for a second mortgage with a bank, you will end up paying between 14% and 30%. These higher rates are because these lenders usually lend to “high risk” individuals such as those with a poor credit score.
• Most banks have several fees to set up a second mortgage.
• Most banks will not give small second mortgages (most have a limit of $10,000 as the minimum).

Debt Consolidation using a Line of Credit or Overdraft

If you speak to a certified non-profit credit counsellor for debt consolidation, he/she will give you the option that best works for you. If you qualify, one of the cheapest ways of consolidating your debt in Canada is through a line of credit or an overdraft. With a line of credit or overdraft, the lender gives you a credit card. This allows you to buy your different loans, bills, and other credit card balances and to combine them into one. Lines of credit and overdraft are either unsecured or secured. The amount you qualify for (and whether you qualify at all) depends on:

• The lending policy of your lender (this changes from time to time depending on how the economy is doing)
• Your net worth (your assets vis-à-vis your debts)
• Your credit rating

Lines of credit and overdrafts are different from debt consolidation loans in that you are not given a lump sum. However, just like a normal loan, you have to make minimum monthly repayments.

More specifically, overdrafts allow your bank account balance to go below zero, essentially working as a credit card once your debit account hits zero. On the other hand, lines of credit act as separate credit accounts which you can draw for if you are ever in need of cash

• You get very low interest rate, especially given the currently low Bank of Canada Prime Rate.
• Minimal monthly repayments are usually very flexible and you can pay off the loan as fast or as slow as you want. With normal loans, there are penalties for early repayment. Being able to make clear your debt before time and without charges means you will save on interest.
• You can have an ongoing line of credit where you keep the account open even after your loan consolidation efforts, as long as you remain in good standing with the lender.
• When you do not have money, you only have to make minimum payments that cover the interest.
• Lines of credit address the fact that Canadian lenders are not terribly interested in underwriting one-time personal loans, especially unsecured ones, for most customers. It is also uneconomical for borrowers to take out loans every few months, repay them, and then continue the cycle. Lines of credit solve both of these issues by availing money on a needs basis.
• Negotiating for a line of credit or an overdraft is usually quicker and easier than negotiating for a loan and other debt consolidation options.
• You only have to pay interest from the moment you access the money, unlike with credit cards where you have to pay interest from the moment you get the card.
• There is a risk that your debt will never go away if you are not disciplined since the minimum payment only has to cover interest.
• Interest rates are “floating” or variable. Although the Bank of Canada Prime Rate is low today, nobody can predict what can happen tomorrow.
• The interest rate of an overdraft, combined with the monthly fee, can be more expensive than the credit card interest rate.
• Given the high-interest rates of overdrafts, they can just be as burdensome as credit card debt if not managed properly and repaid quickly.
• Banks have a credit evaluation process, meaning there is a big risk you will not get a line of credit if you have poor credit.
• In Canada, the interest on lines of credit isn’t tax deductible.
• Some lenders charge maintenance fee even when you are not using your line of credit, meaning this is an additional cost you have to deal with even when you are not doing debt consolidation.

Applicable Interest Rates

Overdrafts are usually more expensive than traditional lines of credit, mostly because they are unsecured. Banks, credit unions and other lenders typically charge interest in excess of 20%, just like you get with a credit card. You will also pay a monthly fee for the service.

On the other hand, traditional lines of credit are priced based on the Bank of Canada Prime interest rates. The lender then charges an interest rate that is near this Prime Rate (usually +2% of the Prime Rate). Since the Prime Rate has been so low in Canada over the past few years, some banks are charging as low as 1% for their lines of credit. Borrowers with low net worth or credit scores are paying even in excess of 8%.

Debt Consolidation by doing a Debt Settlement

Being in debt can be suffocating and it is understandable why people seek to do debt settlement. Debt settlement, also called credit settlement or debt negotiation, is a debt consolidation method whereby you agree with your creditors that they accept a reduced payment as full settlement for the debt you owe them.

From October 2010, for-profit debt settlement companies started advertising to Canadians a new method of settling credit card debt. Canadians could stop paying creditors, save up the money, and then hire “expert negotiators” to negotiate with creditors. This is also a common practice in the U.S. However, this method does not really work. This is because:

• When you quit making your monthly payments, collection agencies start knocking on your doors.
• There is a risk of being taken to court by the creditors who seek the garnishing of your wages or putting a lien on your house.
• Your credit rating deteriorates when you are not making the payments.
• Debt settlement companies usually charge a large upfront fee which is cut from payments of the first few months. They do this because of the work they have done convincing your creditors to take the lump sum amount. If the settlement plan fails, you have a higher debt to pay your creditors and you will have spent a substantial amount of money in fees.
• Many banks and other lenders see this is a scam and do not deal with these debt settlement companies.
• The debt settlement industry is so confusing that Alberta, Nova Scotia, and Manitoba has introduced new regulations to govern the industry. The Ontario government will soon be introducing similar regulations. These regulations focus on banning up-front fees, limiting the amount of fees applicable, requiring contracts that are clearly worded so you know the exact service you are paying for, and allowing a 10-day cooling off period for you to rethink your decision so you don’t feel pressurized to sign.

Before October 2010, Canadians could only do debt settlement in one way. They could get most of the money, contract creditors, and then offer to pay off full or part of the balance in a lump sum payment. If creditors agreed, you got to pay as low as 50% to 80% of the debt.

You should stick to non-profit credit counseling organizations because they are usually very successful negotiation debt settlements. These organizations do not agree to do debt settlements unless this is the only debt consolidation option left.

• You will repay less than what you owe, sometimes considerably less (up to 20%).
• Two years after you have paid off the debt, your credit rating will be completely repaired, but you must have worked with a non-profit debt settlement organization.
• You will have peace of mind since creditors will not be knocking on your door. You will not be dealing with your creditors directly.
• You will avoid filing for bankruptcy, which destroys your credit for many, many years (and is a matter of public record).
• You will need to have a lump sum of money available, which is often difficult if you are already having financial problems unless you have a rich uncle somewhere.
• For-profit debt settlement services have less than 10% success rate and you will not get the services you have paid for in hefty fees. In most cases, the fees applicable are as high as the amount you save.
• It might take between 6 and 7 years for your credit rating to recover if you are working with a for-profit debt settlement company.
• Creditors can refuse to cooperate, taking you back to the drawing board for another debt consolidation option.

Applicable Interest Rates

Once creditors agree to the debt settlement, you will not be charged any fees or interest if you are able to pay up by the settlement expiry date. The debt will then be considered legally paid off in full. However, ensure that this is captured in writing when negotiating with creditors so they don’t turn on you for the rest of the money.

Debt settlement can be as low as 20% of the full amount to over 80%, depending on your particular situation. As an example, if you have lost your job and you are now working on a lower-paying part-time job, creditors will see you are unable to pay the full amount and since they don’t want you to file for bankruptcy (which means they will not be paid anything), they can accept a lower debt settlement.

Debt Consolidation using your Credit Cards

The average Canadian household has credit card balances in excess of $8,000 and is paying interest rates of 19.99% or more, which translates to $1,600 per year in interest alone. If you have debt from multiple credit cards, you can consolidate debt into one or a few credit cards to reduce the number of monthly bills to pay

• You can take advantage of low-interest rates after consolidation as well as low promotional interest rates from time to time.
• With a single credit card debt, you can easily and conveniently track what you owe and you will not risk failing to, or forgetting to make monthly repayments.
• You are not restricted on how much you can pay at the end of the month. You can pay the minimum when things are not going well (such as in case of an emergency) and as much as you can afford when you have cash (you will save on interest if you finish repaying quickly).
• Most people who need to consolidate their loans already have financial issues, meaning they don’t qualify for % balance transfer credit card in the first place. Lenders give the best balance transfer deals to those with high credit scores and clean credit history.
• Low promotional interest rates usually only last for a few months, the duration within which you might not have cleared your now consolidated credit card debt.
• After the end of the promotional rate, normal interest rates apply. These are usually very high in Canada and can eat into your monthly disposable income.
• If you are not disciplined, the fact that minimum monthly repayments are low means there is no pressure and it might, therefore, take you decades to pay off the debt.

Talk to a credit counselor to help you determine the debt consolidation method that best works for you. However, note that not all credit counselors have your best interest at heart, even non-profit counselors. Some of the things to consider when searching for a reputable non-profit credit counselling organization include a willingness to send free information without asking you to share details of your situation, licensing to offer the services, and whether other services are offered (such as savings debt management classes).

Debt Consolidation using Credit Cards

To determine if credit card consolidation is the right option, there are several things to consider:

• From your credit card statements, how much credit card debt do you have?
• How much can you realistically afford to pay for your credit card debt at the end of each month?
• What is the duration of the introductory low-APR window or the low promotional interest rate?

Debt consolidation using a credit card is a good option if you cannot find a lender to give you a debt consolidation loan. Once you have a single credit card, you could then beat the banking sector in its own game by going for a 0% balance transfer credit card. This allows you to transfer your store card and high-interest rate credit card to a balance transfer credit card that attracts a low interest rate of between 0% and 2.99%. With most lenders, the interest-free grace period is usually spread between 12 and 40 months. When you do credit card balance transfer from one provider to the next, the new provider will charge a fee for this service. This is usually a percentage of the amount you want to transfer. This transfer fee is between 2% and 5% with most lenders.

Not paying interest on your credit card debt means you will clear the debt sooner. Note that even when the grace period ends, you will have paid off a substantial portion of the debt and you will be able to pay the rest more comfortably.

The law only obliges lenders to give 51% of applicants their advertised promotional. If the lender decides they do not want many applicants, you may still fail to get the low promotional interest rate.

Note that with some lenders, the low introductory APR might only apply to balance transfers. This means if you make a new purchase, you may be charged the standard APR, which is usually very high. This is, therefore, a good option if your sole aim is debt consolidation (and not getting a new credit card debt).

Lenders offer low promotional interest rates from time to time to encourage defaulters to pay off their credit card debts. Take advantage of these low promotional interest rates to do the consolidation.

Debt Consolidation with a Debt Management Program

You can consolidate your debt by joining a Debt Management Program. These Programs work by consolidating all your credit card debt into a single monthly payment. You will then be making the monthly payment to the credit counseling organization that has organized the Debt Management Program. It will be the responsibility of this credit counseling organization to pay off creditors.
Before the Debt Management Program takes effect, your creditors must have agreed to the arrangement. If it is your non-profit credit counselor that has recommended this Program, creditors will typically agree (this is in their best interest since it guarantees they will be paid).

On enrolling in a Debt Management Program, your entire debt will be wiped off in 5 years. However, most Canadians pay off their Program within 3 months for much needed financial freedom.

So, who is DMP meant for?

• People who are struggling with unsecured debt (that that did not require collateral when you were getting the credit).
• For those with debt that is more than 20% of their income
• For people who are being harassed by debt collectors

Other than credit card debt, there are other types of debt that DMP is good for. These are:

• Retail Store Credit Card Debt
• Unsecured Personal Loan Debt
• Credit Union Unsecured Loans and Credit Card Debt
• Auto Repossession Debt
• Gas Cards
• Non-Government Student Loan Debt
• Past-due Cell Phone Bills
• Past-due Utility Bills
• Medical Bill Debt (some, not all)
• You will clear all your credit card debt in less than 5 years (typically 3 years in Canada) since the monthly repayments are fixed.
• You will be charged 0% or near 0% interest, which is better than most other debt consolidation methods.
• Within 2 years of completion of the Debt Management Program ends, your credit score and credit report will have been completely repaired.
• Most non-profit credit counselling organizations provide free one-on-one help. You will be given relevant budgeting, money saving and debt management tips in workshops and other fora.
• The fact that you will not be dealing with creditors directly has many indirect/intangible benefits such as reduced stress levels and better sleep (which means better health) and improved relationships with friends and relatives.
• DMP is a good option if you don’t want more drastic forms of debt relief such as bankruptcy and consumer proposal.
• This is not a legal process, unlike debt relief such as bankruptcy and consumer proposal.
• This is the only formal debt repayment program that has no permanent record and is completely private in Canada. Your records of the DMP and the debts paid off through the Program are erased from your report 2 years after completion.
• Your credit counsellor will not agree to a monthly repayment you cannot afford, meaning you will get financial freedom even as you are in the Program.
• This solution is not for everyone. Your Credit Counselling organization must convince your creditors that this is the best way to ensure they are paid all their money. Note that creditors will be getting a “pay cut” since you mostly pay the principal only and they may refuse to get on board if they feel you can do debt consolidation through other methods.
• You will have a bad credit score for the duration of the Debt Management Program and for 2 years after the end of the Program.
• If you are using a for-profit credit counselling organization, you will have to contend with large fees (but there is no real reason why you should not be using a non-profit credit counselling organization).

Applicable Interest Rates

Non-profit credit counselling organizations

If you get a good non-profit credit counselling organization, you will get 0% interest rates (with most major creditors) or rates close to 0% (for smaller creditors). Given the 0% or near 0% interest rate, non-profit credit counseling organizations usually charge a small fee for the Debt Management Program to take care of administration costs.

For-profit credit counselling organizations

For-profit credit counseling companies also offer this service, but with higher interest rates since creditors will not allow them to offer lower rates. For-profit companies usually have a large upfront fee (in the thousands of dollars) for the service. You would expect stellar service with this high fee, but in most cases, the service offered does not correspond to the charges. The main reason for this is that most creditors will not work with for-profit credit counselling companies.

Debt Consolidation using a Debt Consolidation Loan

Debt consolidation allows you to merge several smaller loans, credit card balances, payday loans, overdraft balances, bills, and debts into one. Note that in reality, it is technically impossible to combine different loans since each loan has its own repayment terms and interest rate. So to consolidate a debt involves getting a new, larger loan and using the money to pay off the smaller loans that you wish to consolidate.There are many sources of loans to do debt consolidation, one of the most popular being debt consolidation loans.

• Since you only have one loan to repay at the end of the month, there is a reduced risk of making a late repayment. Having only one loan to deal with is convenient and it gives you peace of mind.
• Most lenders offer debt consolidation loans at a lower interest rate compared to what you are paying with the smaller loans (especially credit card debt), meaning you get to save money.
• There are timelines when you have to pay off the loan (typically 2 to 5 years), meaning you are better able to plan your future.
• The applicable fees when getting a debt consolidation loan are usually very low.
• Debt consolidation does not negatively affect your credit rating. There is actually a good chance your credit rating will improve since with reduced interest payments means you are more likely to meet your obligations.
• With most lenders, you have to provide some form of collateral to qualify for the loan. This means a lien against your household furnishings or car or a second mortgage on your house. If you are unable to meet your monthly obligations, you risk losing a lot.
• Even if you will be paying lower interest, combining old debts still leaves you with a large monthly repayment. If you were struggling with 5 small loans, you will still struggle with 1 large loan.
• There is a risk that you will fall even further into debt if you consolidate your loans and you still have access to your old credit cards.
• Most lenders require that you have a good credit score, meaning this is not a viable option if you don’t.
• Home equity loans (refinancing your home) give you a lower interest rate.
• If don’t have collateral, the interest rate for debt consolidation loans can be as high as 30%.

Interest Rates in Debt Consolidation Loans

In Canada, you can get the best debt consolidation loan interest rates from banks and credit unions. Lenders set interest rates on a case-by-case basis. Some of the factors affecting interest rates include:

• Your credit score
• Whether you have an existing relationship
• Whether or not you can provide good collateral, some of the best collateral being non-RRSP deposits, new model vehicles, boats, and other assets that are easy to liquidate or sell.
• Your net worth (your assets should be higher than your debts for unsecured debt consolidation loans)
• Availability of a high net worth co-signer (for debt consolidation loans)

Over the past 10 years, debt consolidation loans have typically attracted an interest rate of between 7% and 12% while finance companies have been charging an average of 14% and more than 30% for secured loans and unsecured loans respectively.

What it takes to secure a Debt Consolidation Loan

Banks have several minimum requirements that you have to meet to get a debt consolidation loan. These include:

• You must not have made too many late payments of the debts you want to consolidate
• You must not have a big negative on your credit report
• Your income must be enough to support the monthly repayments
• You must provide good collateral in case you are unable to fulfill your obligations

Note you may still get the loan even if you do not fulfill all the requirements. A good co-signer will assist you to secure a loan since he/she will be responsible for clearing the loan if you are unable to.

If you do not qualify for a debt consolidation loan due to such reasons as unavailability of reasonable collateral, there are other options available. Most of these solutions are a little complex and you may want to talk to a Credit Counsellor to know what best works for you. Non-profit Credit Counsellors offer their services free of charge. No matter how desperate or complicated your situation may seem, do not despair – there is a solution for everyone.

Debt Consolidation by Borrowing from Family or Friends

If you have family members or friends who have money and are willing to lend it to you, this is a great debt consolidation option.

This is a good option if you have bad credit and banks and independent lenders are unwilling to lend to you since family and friends will not consider your credit score.

However, there is a risk of even your closest relatives and friends refusing to lend you money. You should not take offense because they understand the dangers of lending to family and friends. In case you are unable to repay for one reason or the other, they are only left with 2 options:

• To forgive the debt to preserve their relationship with you
• Insisting that you repay, which will most likely lead to break down of the relationship

Relatives who refuse to lend you money may be doing so to prevent jeopardizing the relationship. They may feel they are unable to forgive the debt should you be unable to repay.

“Neither a borrower nor a lender be; / For loan oft loses both itself and friend,” said William Shakespeare in Hamlet, circa 1603 Act-I, Scene-III. On this famous phrase, the character Polonius is counseling his son Laertes before he goes to Paris that he should not lend or borrow from friends because he will lose both the friend and the money.

• There is no application process
• You will get money immediately
• You may get a favourable interest rate if any
• You will not be reported to a credit bureau if you make late repayments
• Your friends and family are likely to agree to a longer repayment period
• Relatives and friends already know your circumstances and character and are, therefore, less likely to need a detailed business plan
• They are inclined to say yes
• Even if they cannot afford all the money, the little you get will enable you to get more from a bank or an independent lender
• Most people find borrowing money from relatives and friends to be embarrassing. Borrowing means your friends/relatives will know about your financial difficulties that you may have been trying to keep from them.
• According to Mark Beyer, a financial advisor with Edward Jones, “I would advise against borrowing from a friend or family member unless you have exhausted all feasible options and/or they are willing to give you an interest-free loan.’’ He argues that just like with a bank, the relationship will be fractured if you fail to repay.
• Borrowing from friends and relatives often lacks clarity, which means the lender and the borrower often have different expectations.
• There is also a risk of the money coming from friends and relatives will have strings attached, something that does not happen with money from banks and independent lenders.

Your Responsibility when you Borrow from Friends and Relatives

Come up with a proposal when borrowing money and treat the loan as you would a bank loan if you care about your relationship. The agreement should be in writing and it should include:

• The amount being borrowed (principal)
• Applicable interest rates
• Repayment terms (lump sum or monthly installments)
• The course of action if you are unable to repay (such as an addition of additional costs to the loan, taking collateral, or modifying the loan terms)

You should accept questions from the lender. This shows the lender you appreciate the risk they are taking. Let the lender go through your budget and to even make proposals. Make the lender comfortable that you are able to pay back the loan.Your friends and family will know how you are spending the money. They are likely to take offense if they see you spending it for such things as making expensive purchases, eating at expensive restaurants, and going on exotic holidays.Use any extra money you come across (such as a tax return) to repay the loan. This good-faith gesture will establish credibility.

Communication is key, even when you are unable to honour your repayment obligations.

Explain how lending you money will benefit the lender. As an example, if you have been borrowing money regularly to make ends meet, you could tell the lender than your financial freedom means you will no longer borrow regularly.

Your lender will be wondering why you are unable to get money from a bank or an independent lender. Be honest and explain the reason why (such as a bad credit score). They will appreciate the honesty.

Student Loan Debt

Most Canadians opt for student loans to help finance their college or university education. The National Student Loan Centre asserts that it takes an average of 9 years for Canadians to repay off their student loans. Media outlets indicate that as of January 2018, the Canadian student loan was topping $25,000. Therefore, it’s becoming increasingly crucial for every graduate to implement an effective debt repayment strategy.

In some cases, joblessness, unexpected life events, and the changing economic conditions affect their ability to repay these student loans. Note that your student loan and a student line of credit payments are part of your credit history. Thus, late loan repayment or failure to pay can negatively affect your credit score.

If you have been struggling to pay off your student loan, here are some of the viable debt relief options.

Debt repayment assistance plan

The repayment assistance plan is a viable option to lower the amount you pay monthly. To qualify for RAP you must be living in Canada, it has to be six months since you completed your learning process at school, and your student loan must be up-to-date. For more information about RAP, check the Government of Canada’s official website.

Revision of terms of the student loan

During the revision of terms of the student loan you may be allowed to extend the time it will take you to complete your student loan up to 15 years. This option will make your monthly loan repayment amount lower than previous installments. However, you will end up paying more interest since it will take you longer to repay the loan in full than the usual.

File a consumer proposal

If it’s challenging to repay your student loan and you have been out of college or university for 7 years or more, consumer proposals Toronto can help. It will combine all your unsecured debt payments into a single monthly installment and offer you a reasonable timeline to repay your debts. For example, if you have two credit card bills and a student loan, a consumer proposal will combine all these debts and set a single monthly payment within a specific timeline.

File for bankruptcy

The thought of filing for bankruptcy can result in stress if you’re considering this option. However, if you are struggling to pay your student loan, it’s imperative to understand that bankruptcy isn’t the only option. A licensed insolvency trustee can take you through all the viable options and help you choose the best debt relief option that suits your financial status.

In some cases, you will realize that filing for bankruptcy is the only option. Here are circumstances under which bankruptcy is the best option.

• Currently, you owe more resources to creditors than you’re earning
• You are unable to pay all your bills and the monthly debt installments without getting more credit
• One or more of your creditors are garnishing your wages
• You are seeking debt relief and start afresh financially.

You no longer need to struggle with your student loan repayment. Any of the options discussed in this article can help.