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August 2013 - Options for solving financial problem part 1 – Debt consolidation

Options for solving financial problem part 1 – Debt consolidation

☳ by Adam Aspilla

There are seven commonly known options for solving financial problem. These options are not applicable for every financial problem for these depends on individual circumstance.  These are the commonly known options: Debt Consolidation, Mortgage Refinancing (Equity Take Out), Liquidation of Assets, Debt Settlement (Negotiation), Credit Counseling, Consumer Proposal, and Bankruptcy.

First, is Debt Consolidation (consolidation loan), it simply means you have to go a bank, trust company, credit union or finance company to apply for a loan for the purpose of combining all your unsecure debts (credit cards, line of credits, loans from other financial institutions or private individuals). 

With Debt Consolidation you can improve your cash-flow, for the amortization period is up to 60 months or five years for most financial institution, thus, your monthly payment would be reduced.

To qualify for a consolidation loan you have to meet the income requirement and your credit rating must be acceptable to the lender. Those are the two basic requirements.

The best source of a loan consolidation is from primary lenders: banks, trust companies, and credit unions for their interest rates are much lower than secondary lenders which are finance companies. Furthermore, primary lenders do not generally require a collateral. However, their lending requirements are much tougher than the secondary lenders.

Should you not qualify a consolidation loan from a primary lender, you may consider getting your consolidation loan from a secondary lender where interest rate is higher by at least two percentage points. Moreover, secondary lender, generally requires, collateral like: your household appliances, your car and other personal properties.

Remember, the primary purpose of debt consolidation is to improve your cash-flow, meaning your monthly payment by combining all your debts is substantially less than the combine monthly payments of your existing debts from different creditors. Should you not achieve that primary purpose, debt consolidation does not make sense for you, for it would not solve your financial problem.

What to do then? You have to consider other options (above mentioned) applicable to you. The writer will explain the remaining options in succeeding issues.



Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.