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9 Aug

Debt: To consolidate or not to consolidate? That is the question…

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Posted by: Karli Shih

Debt: To consolidate or not to consolidate? That is the question…

 If you are a Canadian living in debt, you are not alone. According to Statistics Canada:

  • Household debt grew faster than income last year, with Canadians owing $1.83 for every dollar of household disposable income to debt(1)
  • Canadian households use almost 13.48% of income for debt re-payment(2).
  • The cost of living is projected to increase in 2022 (2)

And we are all aware inflation and interest rates have been rising rapidly of late. 

 

What is debt consolidation and how does it help?

Debt consolidation allows you to pay off smaller loans with a larger loan at a lower overall interest rate. This may be an avenue to explore to costs and repay debts faster.

 

Pros and Cons

Pros

  • The lower the interest rate, the sooner you get out of debt. A lower monthly interest allows you to pay more towards your actual loan, getting you debt-free faster.
  • You only have to make one monthly debt payment. This is more manageable than keeping track of multiple debt payments with different interest rates.
  • Your credit score remains untarnished because your higher interest loans, such as a credit card, are paid off.

Cons

  • A larger loan with a financial institution will require prompt payments. If you were struggling to pay your debts before, you may still be challenged with payments unless you qualify for a reverse mortgage.  Reverse mortgages are not always age-restricted, please contact me for more info.
  • You may require a co-signer who will have to pay the loan if you’re unable to qualify on your own. Note that the CHIP Reverse Mortgage does not require a co-signer, as long as you qualify.

So how do you know if debt consolidation is the option for you? Contact me any time for assistance in weighing your options. 

 

SOURCES:

1 Debt-to-disposable-income ratio eases down from record 185% | CBC News

2 Key household debt-to-income ratio down in Q1 as income rises faster than debt | The Star

 

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