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In a layman’s language, debt consolidation is a way of using one type of financing to pay off other debts.

In a layman’s language, debt consolidation is a way of using one type of financing to pay off other debts. There are specific loans offered by creditors (banks, credit unions and specialized debt consolidation companies) to borrowers having difficulty in managing the size and count of their outstanding debt.

All debt consolidations are not the same. They can be divided into debt consolidation loans and debt consolidation programs. They are different from each other.

Debt Consolidation Loans – It involves securing a loan to pay off all the debts you have. It usually comes through a bank. To make life simpler, it helps you by way of paying back one huge loan via one lending institution at a set rate of interest, instead of a paying a number of creditors at various interest rates. However, to get a debt consolidation loan, you would need to have a good credit score.

The negative side of debt consolidation is that there is a chance of people accumulating more debt due to having continued access to their old credit cards with zero balance.

Debt Consolidation programs – It is a plan put together where a credit counsellor works with the creditors to help clear off the unsecured debt within a certain period of time.

The credit counsellor will compile and put forward a proposal to all the creditors about the amount that can be feasibly paid by you on a monthly basis. If the creditors accept the proposal, you will have the advantage of a single affordable monthly payment, a fixed end date, and reduced or no interests on those debts. Above all, you can rest assured that you will not be receiving any more collection calls.

Tips on choosing debt consolidation in Canada

If you are looking for debt consolidation in Canada or for that matter, anywhere in the world, you should be careful not to fall into the trap of companies who would take advantage of your misery.

If you have a good credit score and are in the look at debt consolidation for your relief, your best options would be going to a good credit union or your bank or a finance company and know about the debt consolidation plan and interest rates that you would qualify for.

However, you don’t have a good credit score, as you need to be very careful while signing up for debt consolidation.

Given below are a few pointers to be kept in mind while going for debt consolidation in Canada.

  • You should check for their accreditation. They should meet the industry standards established by the Association of Financial Counselling and Planning Education (AFCPE) and Credit Counselling Canada (CCC).
  • You should make sure that the company you use follows the guidelines set out by the Office of the Superintendent of Bankruptcy (OSB) if you going down the route of a Consumer Proposal or bankruptcy.
  • Make sure to ask about their fees. A good company will usually charge no more than $50 along with a small monthly management fee.
  • You should also check their Better Business Bureau (BBB) rating which is a rating given to companies depending on the complaints from the public, government licensing and so on.

It is always a good idea to seek advice from a reliable place when your debt becomes unmanageable. There are many financial institutions that provide debt advice in Canada and help people find a path to get rid of the debt they have accumulated.