When you’re struggling to make ends meet due to debt or just feel like you have too much money going to making your monthly payments, it’s time to look at some options.
Canadian household debt has been on the rise in recent years, with managing personal finances being more challenging than ever.
A personal loan is often the answer when looking to get out of debt and get your personal finances back on track. While it isn’t for everyone, here is what you would look for to see if it’s the answer for your own situation.
For some, this can mean ditching the high interest rates for something more affordable, which either means you lower your monthly payments to afford more, save more, or use the money to help pay off your debt even sooner.
Compare Your Debt Options
Take your combined outstanding debt, but not including student loans or mortgage and add it up. Also make note of the interest rates for each type of debt and determine the average rate among all that is outstanding. If you qualify for a personal loan where the interest rate is lower than the debt that you added up, then that difference could be the savings to be found.
As an example, let’s say you had 2 credit cards with interest rates of 22% and 18%, making the average interest rate between the two cards at 20%. Now let’s suppose the balance of these credit cards was $10,000 in total. If you have a good credit score, such as 700 or better, the chances are good that you would be eligible for a personal loan that could have an APR of several percent less than what you currently pay. If you were thinking that $10 or $20 isn’t a whole lot, let’s put it this way. If you put $20 aside each month for five years (60 months) that adds up to $1,200. Every situation is different, and the savings could be much more.
Perhaps you have debt that isn’t credit cards, the same principle applies. Add up the outstanding debt and determine the interest rate average, then compare with personal loans where you prequalify to determine if debt consolidation is right for you. Unless you locked in a loan when you had a better credit score and it dropped drastically since, chances are that consolidating your debt with a personal loan is going to be a good move.
Making smart money moves like using a loan with better terms and rates can also help reduce financial stress. This can also help improve your credit score and debt to income ratio, which are both factors when looking to borrow.
Stop Taking on New Debt
If you want to get out of debt you should have more restraint with your spending, along with stop taking on new debt. If you’re trying to pay off debt while adding to it at the same time, you’re not really making the progress you might want. You should also keep an eye on your DTI ratio as well.
If you use credit cards, make sure you are able to pay them off immediately. You might even leave the cards at home and make a habit of paying in cash to help curb your spending. It would be more important than ever to carefully monitor and manage your incoming and outgoing expenses and payments.
Time to Settle
If you looked into debt consolidation and found that a personal loan with better rates is available and it makes sense to settle on a lender, you want to also look beyond the APR for late payment fees, prepayment fees and similar personal loan issues that you should stay on top of.
Lower Your Expenses
While trying to fix your money problems it’s wise to reduce your overhead, or cut down on your expenses each month. This can include eating out less, stopping some subscription services, and even looking for deals at the grocery store. These types of debt reducing tactics aren’t a permanent move, but can be really helpful when you reduce costs and use the extra money to pay off your debt sooner, which should cost you less in interest over the long term.
Even if you have a poor credit history, you might find that installment loans could also be suitable for restructuring or consolidating your debt for another loan with better terms and rates than you might have applied for from the past.
When you follow the above suggested tactics to getting your finances under control and eliminating your debt, you should be that much closer to ending your money problems. Most of the time it is worthwhile to look into how you can improve your personal finances. A personal loan in Canada might be the answer you’re looking for if you carry debt and having trouble to cope. The best way to find out is by running the numbers to see if it makes sense. One sign that debt consolidation with a personal loan might make sense is to review the interest rates of the debt you owe and compare to what’s available to you. If the options available are currently lower, it could be worth considering. Be sure to take APR into account for a Canadian personal loan, as these would include costs/fees and a better way to compare than just by interest rates.
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