A Consolidation Loan May Not Be The Way To Go

By Author: zeenbindro
Total Articles: 16
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By the time someone realizes that they are over burdened by a heavy debt load they may be far too overwhelmed to understand the options available to them. When presented with the choice between debt consolidators and negotiating a debt settlement plan, many are left confused and unable to distinguish the differences between each.
Rising debt loads are a growing concern amongst Canadians faced with the current economical ebbs and flows. It is not uncommon for those faced with an overabundance of debt to begin sourcing out new ways to alleviate some of the stresses associated with being unable to fulfill their financial obligations. Given the expanding need for debt assistance, the market has become increasingly competitive.
Traditionally, when faced with a heavy debt load Canadians may have opted to either file bankruptcy or take out a debt consolidation loan. Today, however, those with unsecured debts totaling more than then thousand dollars have the option of negotiating the principle balance of their debt and paying ...
... back a lesser percentage under a debt settlement plan.
Typically, there are few differences between debt consolidation Canada and a debt settlement plan. Under a plan to settle their debts, debtors have the option of paying back a renegotiated portion of their debt load. Whereas a debt consolidation loan may enable them to pay off their entire outstanding balance, however, they will then be required to meet the terms of the loan. If the terms are not met, and they find themselves in default, it is likely that they will need to once again consider bankruptcy or its alternatives.
While debt settlement does have a negative effect on a personal credit rating, it is not nearly as detrimental as a bankruptcy would have been. Some may look at the probability of a negative mark on their credit report as a greater reason to consider debt consolidators. Prior to taking out a debt consolidation loan it is important to understand the basic elements of such loans.
A consolidation loan costs much more than just the amount of the outstanding debts. Lenders often charge sign-up fees and on-going maintenance. Interest is another factor that must come into consideration. The chances are good that if someone has a need for a debt consolidation loan they are unlikely to be able to secure a good interest rate. Being deemed a high risk will result in the need for collateral, a co-signer, or an interest rate of up to 36%. This could result in the amount of money being paid back doubling or even tripling the original debt balance.
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Typically, there are few differences between debt consolidators and a debt settlement plan. Under a plan to settle their debts, debtors have the option of paying back a renegotiated portion of their debt load. Whereas a debt consolidation loan may enable them to pay off their entire outstanding balance, however, they will then be required to meet the terms of the loan.