Debt consolidation is a process whereby the borrower obtains a new loan to replace credit card balances and other unsecured debts. For example, if you have an unsecured loan, 3 credit cards, and a line of credit, you may qualify for a consolidation loan to pay off your outstanding obligations. You will be making 1 payment a month instead of 5 separate payments.
Debt consolidation loans are usually provided by credit unions and banks. Some borrowers use the services of consolidation companies that negotiate the terms and conditions of the new loan.
Debt consolidation offers a number of advantages, and one is that borrowers are usually allowed to repay the loan over an extended period of time. Another advantage is that borrowers who manage to repay their outstanding balance benefit from an improved credit score and perfect credit report. Thus, qualifying for such a loan is a way to simplify your monthly payments, reduce interest costs, and get better control of your finances.
One important question is whether consolidation is a better option than bankruptcy. Generally, bankruptcy is a good solution for businesses and individual borrowers who have multiple large debts and are unable to handle them. There are many downsides to declaring bankruptcy, however. First of all, not all debts are discharged. You will lose non-essential possessions and your credit cards, and you won’t have access to financing for some time. This includes loans and mortgage loans. Some types of debt are not discharged, including income taxes, past due alimony payments and child support, resulting from divorce procedures, and court fines. Debts incurred by using fraudulent means such as providing incorrect or false information and writing bad checks are also excluded. Exempt property includes household furnishings, motor vehicles, a percentage of your wages, and life insurance.
Note that if most debts are non-dischargeable, declaring bankruptcy is not a good solution. Moreover, bankruptcy is a complicated process, and the different provinces have different rules to regulate bankruptcy. You may want to use the services of a bankruptcy lawyer who knows the ins-and-outs of declaring bankruptcy.
For more information on consolidation continue reading here: http://www.canadabanks.net/default.aspx?article=Consolidate+Your+Debt
