When Savings Evaporate and Debts Swell…
During the pandemic, Canadians were initially stick to a debt free diet. Although there were some job losses, the employment rate stayed fairly stable. Initially, costs of consumer goods did not rise much. Travel was impossible, and supply chain issues made a lot of big purchases difficult. There were fewer ways to spend savings and many Canadians simply hunkered down and coasted.
But now the economy is changing. Interest rates are climbing, inflation is at record levels, housing costs and, in particular, rental costs are sky high. Normal activities (and the temptation to spend money) have returned even as nervous investors consider the possibility of a recession. Most worryingly, personal debt loads are once again rising, and an increasing number of Canadians are having difficulty meeting their financial obligations.
Two Options for the Heavily Indebted…
When debt becomes overwhelming, it is not surprising that the option of declaring bankruptcy becomes attractive. On the surface it seems like a workable proposition: an erasure of debt creating a chance to start anew. In reality, declaring bankruptcy is far more complex and drastic. With that erasure of debt comes a loss of assets and the annihilation of your credit rating. There will be an ongoing likelihood of increased interest rates or security deposits on any borrowing, post-bankruptcy.
There is a less drastic option - Debt Consolidation. By this process, your various debts are merged into one loan. You then pay a single monthly amount against the consolidated loan, instead of multiple payments to the various lenders to whom you are currently in debt. There are a number of advantages to going this route – and a couple of caveats.
Why Debt Consolidation May Work for You
Debt Consolidation does not solve the underlying problems that may have led to your money woes. What it does do is radically simplify the process of dealing with them. It streamlines the payment of debt by clustering all your diverse debts into one loan, with one payment. Because your debt is consolidated, there is less chance or incentive to miss a payment. You have a much clearer idea of when your debts will be paid off, and a better-defined idea of the amount of your ongoing cash flow.
By making monthly payments on time, you boost your credit rating. It is possible that the consolidated loan will have a lower interest rate than some of your previous individual loans, and that rate will be fixed. It won’t fluctuate, as with credit cards. If the interest is lower – and it must be cautioned that this is not a given with consolidated loans – then you will have more money in your pocket. That could mean the chance to pay off your debt earlier. (It is vital, however, to avoid taking on more debt – a consolidated debt is NOT a license to increase your spending, but rather is intended to reduce the overspending that lead to your debt in the first place.)
Paying off burdensome financial liabilities is never easy, but a consolidated debt load is a bit like going on a debt free diet. It can work, and the rewards are healthy
