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How To Take Advantage of Personal Loans for Debt Consolidation

If you’ve ever checked your bank account only to find that unexpected debits have been made, it’s likely that you have many, disorganized debt repayments coming out at different times of the month. While this is a stressful feeling, you are not alone. Debt can take many different forms, but some of the most confusing monthly debits may come from different credit cards or easy payday loans, all with different amounts and with different interest rates.

If you feel overwhelmed with your confusing repayment schedule and are living in fear of an unexpected debit from your account, a debt consolidation plan may be the best option for you.

What is a Debt Consolidation Loan?

A debt consolidation loan is a loan that is taken out to essentially combine all your existing debts into one single debt. This new loan has a fixed interest rate and set monthly repayments, so is generally much easier to manage in your regular budget. It can also end up saving you hundreds of dollars in the interest you would have paid on high-interest loans.

A debt consolidation loan can help you stay on top of your expenditure, and ultimately get out of debt faster.

Benefits of a Debt Consolidation Loan

If you are facing multiple, high-interest debts each month, you will be pleased to know that a debt consolidation loan could be your best option for getting your finances back on track. Some of the advantages of rolling all your existing debts into one new loan include:

  • Lower interest rates: Generally, by consolidating your debt you are able to reduce the high rates of interest on your separate, smaller loans. In the long run, this will save you valuable money.
  • Faster debt clearance: By avoiding the high interest rates of multiple loans, your hard earned money can go to the actual loan amount. This means that you will be out of debt faster
  • Easier to manage: For many people, the most stressful part of financial management is keeping track of their multiple debts. Direct debits or due invoices can feel stressful and constant - a debt consolidation loan takes the balancing act out of multiple monthly repayments.
  • Fixed monthly amount: Just as it is less stressful to know when your repayments are due, so it is to know how much is coming out. A debt consolidation loan lets you easily budget each month, even when your other life expenses fluctuate.
  • Improved credit score: By consolidating your debts, you are paying off a lot of your available credit lines. This means that you are lowering your credit utilization rate, which could ultimately raise your credit score. While you must be careful to not be tempted to apply for any more credit cards, a raised credit score will help you in the future to secure lower interest rates and important secured loans such as a mortgage.

Is a Debt Consolidation Loan Right for You?

A debt consolidation loan, however, is not necessarily right everyone. It is a suitable option for you only if:

  • Your current outstanding debt is high, split over many loans and with a high interest rate. If your current interest rate is low, it may not be worth the effort or associated costs.
  • You can make the new quoted monthly payment. If you are unable to afford the new repayments, the costs are likely to increase causing further stress.
  • Your credit score is high enough to secure a low interest rate - if it isn’t, a debt consolidation loan is not likely to be particularly helpful. It is a better option to work on improving your credit score but continuing to make payments, while not increasing your balance on any outstanding credit cards.

How To Make The Most Out Of A Debt Consolidation Loan

Taking out a debt consolidation loan is a great step towards taking control of your finances, and setting yourself up for financial freedom. Beware, however, of getting too confident and falling into the trap of further perpetuating the debt cycle. Looking to get cash now is okay, but make sure you are in control.

When you consolidate your debt, you will then have access to those credit lines that were previously being used. It is crucial that you resist the temptation to spend more on these credit cards or take out more payday loans, because then you are only getting further into debt.

If you have a gut feeling that a debt consolidation isn’t the right option for you just yet, there are others options available. Considering home equity, local debt relief services or credit counselling can all be great options to consider when looking at the looming issue of your debts as a whole.

Whatever your situation, know that there is a way out of debt. The most important thing is to face your finances, and resist the urge to just ignore your debts month after month.