If you’ve been turned down for a consolidation loan you may feel discouraged and as though you don’t have any other options, but there’s good news – what many Canadians don’t know is that it is possible to consolidate your debt without borrowing. Read on to learn about some common reasons individuals are denied consolidation financing, and what you can do instead.

Why Debt Consolidation is Helpful in Paying Off Debt 

Often people who want to consolidate their debt are looking to get a handle on a financial situation that may be getting stressful or overwhelming, and gain better control over growing balances and payments. There are usually several benefits people try to achieve in consolidating their debts, such as:

• Making one monthly payment to cover all debt instead of trying to manage multiple payments.
• Having a clear plan to pay off debt rather than making inconsistent payments.
• Getting a lower interest rate on the balance owing, reducing the overall cost of carrying debt.

Debt consolidation with a lender means you’re taking out a new loan, not just changing an existing debt, and this means you must meet the lender’s qualifiers. Many consumers first turn to their bank or another lender when they want to consolidate their debt, and, as many discover, getting a consolidation loan can be a lot more difficult than they thought.

Reasons You Might be Denied a Consolidation Loan 

There can be several reasons you might have an application for credit rejected by a lender, and while not all lenders will have the same checks and qualifiers in place, here are some of the common reasons why you might not be able to get a consolidation loan (or other financing):

1. You have a low credit score due to a credit history that shows difficulty maintaining your payments, or a lack of credit history.

Your credit score is an ever-changing number ranging from 300 (low) to 900 (high). To get a consolidation loan with good terms, borrowers generally want you to have a credit score in at least the mid-600’s. Higher scores can qualify for you for ‘best terms’; less than this and you might only qualify for borrowing with a sub-prime lender, which typically comes at a higher cost.

2. You don’t have a major asset to use as security against your loan.

A lender may deny you a consolidation loan if you don’t have a significant asset such as home equity or a vehicle to pledge as collateral for the loan. Lenders will often ask to have an asset as security for borrowing so they have additional means to recover their money – if you stop paying they can seize and sell the asset.

Lenders may also ask you to bring in a co-signer to back up your loan. Much like using an asset as collateral, this gives your creditor other avenues to collect their debt, but carries significant financial risks to your co-signer, not to mention any relationship risks, if you have difficulty making your payments.

What You Should Know About Co-Signing Debts

3. Your income is deemed too low or inconsistent to meet the lender’s threshold.

Lenders want to be assured that you can afford to repay your loan within the amortization period and, from their perspective, the higher your payments are compared to your income, the riskier it becomes that you’ll default on your loan. This can be particularly problematic if you have a lot of debt, have seasonal or part-time income, are self-employed, or lack employment history.

4. Your debt load is too high to qualify for borrowing.

If your debts are high in comparison to your income lenders are likely to deny you a consolidation loan. Lenders may interpret a lot of debt as symptomatic of you having issues controlling spending or they may consider your debt-to-income ratio simply too unbalanced for you to be able to reliably repay a new loan.

How Much Debt is Too Much?

What Are the Alternatives to a Consolidation Loan?

Fortunately, borrowing isn’t the only way to consolidate your debt to get relief from accumulating interest and never-ending payments. In Canada consumers have a few options to consider that can serve to streamline multiple payments, ease interest charges and relieve pressure on your monthly budget.

Consumer Proposals – Consolidate and Cut Debt (up to 80%)

A Consumer Proposal is a unique option in Canadian law and is one of the best ways to consolidate – and cut – your debt, without borrowing, interest, or added fees. This is a legal debt consolidation solution you can access only through working with a Licensed Insolvency Trustee.

• A Consumer Proposal can be used to consolidate virtually all types of debt – credit cards, payday loans, lines of credit, government debts such as income tax balances, business GST, CERB overpayments and more.
• You’ll offer to repay your creditors the portion of your balance you can reasonably afford to pay over a period of up to five years, and they will agree to forgive the rest. It’s not uncommon in a Consumer Proposal for debts to be cut by up to 50-80%.
• Your debts are frozen and because there is no borrowing needed, there are no interest charges.
• A Consumer Proposal will stop interest charges as well as collection actions, even government wage garnishments or bank account freezes.
• The administrative costs for your Licensed Insolvency Trustee are calculated by government-set tariff and are paid from the funds your creditors receive – there is no added or out-of-pocket cost for you – you simply pay what you’re offering your creditors.

A Licensed Insolvency Trustee can talk with you about your situation and whether a Consumer Proposal is your best option. For many people a Consumer Proposal is the ideal solution, allowing you to repay what is affordable and giving you a clear debt-free date.

Credit Counselling – Repay 100% of Your Debt

These informal debt repayment plans are coordinated by a credit counsellor who will try to negotiate an interest reduction or freeze with your eligible creditors, and you’ll make your consolidated monthly payment to the credit counsellor.

• Credit counselling doesn’t reduce your debt and can only consolidate basic debts.
• Because you’re not reducing your debt and will pay a fee to the credit counsellor on top of what you pay to your creditors, credit counselling plans can have high monthly payments, making them an unaffordable and unreliable option in many cases.

Unqualified Debt Advisors – What Consumers Need to Know

Can I Afford a Consolidation Loan? 

It’s important to understand that if you’re considering a consolidation loan or have been turned down for one, your debts may have already reached a point where simply combining them into one new loan is not going to be a significant enough solution to allow you to get out of debt without considerable cost or time.

• If you add up all your debts, divide this number by 60 and couldn’t afford the resulting number as a realistic monthly payment, this is a very simple way to know that a consolidation loan would likely only delay a later cash-crunch and prolong debt-stress you may be experiencing.

If you think you have a debt problem, are worried about managing your debts, or want to find a better way to pay off your debt within five years, the best thing to do is talk with a Licensed Insolvency Trustee to get qualified expert advice about your situation and all your options.

Get Help with Debt Consolidation – Talk with a Licensed Insolvency Trustee About

Licensed Insolvency Trustees are Canada’s only designated debt help professionals, and we are the only experts qualified to offer debt advice to consumers, including solutions that can help you get forgiveness for virtually all types of debts.

• If you live in BC you can talk with a Licensed Insolvency Trustee from Sands & Associates, we serve the entire province from local offices and you can also access our full suite of debt help services over the phone or online – whatever is most comfortable and convenient for you.

When you need guidance on dealing with debt, a Licensed Insolvency Trustee is your best resource, and all Licensed Insolvency Trustees should offer you a free, confidential debt consultation. This is your opportunity to get specific advice about your unique situation and explore all your options, including debt consolidation financing, Consumer Proposals, credit counselling plans and more.

• We’ll spend the time to understand your concerns, needs, and goals and at the end of your consultation you should have all the information you need to make an informed decision about how you want to move forward – and a clear outline of your next steps.
• You don’t need any to get a referral to talk with a Trustee, and there are no qualifiers for you to meet. Just reach out to a Licensed Insolvency Trustee local to your province directly.

You owe it to yourself to get debt help, and we’re here to support you. No judgment, just solutions!

Talk with a non-judgmental debt help expert at Sands & Associates to get a debt-free plan that works for you, and move forward with your life.

The post Turned Down for a Consolidation Loan? Here’s What You Can Do appeared first on Sands & Associates.

How Does a Consumer Proposal Work?

Like a traditional debt consolidation loan, a Consumer Proposal will combine all of your debts into one settlement that you will pay off over a period of time, usually by making monthly payments. Unlike debt consolidation loans, however, with a Consumer Proposal there is no borrowing involved to consolidate your debt and therefore no interest charges to pay. What’s more, you only need to offer your creditors the portion of your debt that you can afford to repay in order to fully settle the debt, with the unpaid balance being forgiven and written-off by your creditors.

Consumer Proposals are typically structured as monthly payments and can drastically reduce the overall amount of debt you must pay – reductions of up to 80% or more are possible, with no further interest charges or additional costs of administration.

For example, you might owe a total of $18,000 to various creditors and with a Consumer Proposal offer a total of $7,200 to settle the debts in full, paid by way of monthly payments of $200 per month for 36 months.

How Do You Qualify for a Consumer Proposal?

Since Consumer Proposals are a legally binding debt relief solution there are very few “qualifiers” – this makes a Consumer Proposal an accessible option for people in a variety of circumstances.

Consumer Proposals may be a good solution for you regardless of your credit score, credit history, or whether or not you have any assets. There is also no co-signer requirement, although sometimes a person might make a Consumer Proposal with the informal financial support of a family member or friend, but this is less common.

To file a Consumer Proposal in BC you must:

• Owe between $1,000 and $250,000 of debt (excluding mortgages on your personal residence);
  • You can still file a Proposal is you owe more than $250,000, but some different guidelines to the process will apply.
• Be considered “insolvent”, meaning that you are not in a position to repay all of your debts at once, or that the total you owe is worth more than the total of the assets you own.

Conversely, qualifying for a debt consolidation loan can be challenging for many people and it can be difficult to get a debt consolidation loan with “bad” credit. Because a bank is lending you money to pay off your individual creditors, they will usually require you to meet several qualifiers that could include:

• Having a high credit score
• Only carrying a moderate amount of debt
• Earning a consistent income
• Granting the bank security over an asset as collateral against the loan
• Finding a co-signer to guarantee the full debt in the event you are not able to repay it per the exact terms of borrowing

If you are approved for a consolidation loan be sure to understand the repayment terms of your loan – interest rates may vary and if your credit history has some blemishes you may not qualify for “best rates”. 

Learn About Mistakes to Avoid in Dealing with Debt

What Debts Can You Consolidate?

Consolidation loans are generally only available to help you manage basic consumer debts like credit cards, and they will not help you cut the amount of debt that needs to be repaid. Essentially the new lender will pay off the individual creditors and you will then owe for this combined balance with interest, nothing less.

Because bank consolidation loans cannot cut the amount of debt you have to pay or serve to legally bind virtually all your creditors, this option may not work for many situations.

With Consumer Proposals however, you can not only cut the amount of debt you need to pay back, but also deal with virtually all types of debts. This includes consumer debts like credit cards, lines of credit, payday loans as well as government debts such as student loans, income taxes and ICBC balances.

• Besides filing bankruptcy, a Consumer Proposal is the only debt resolution method the government will accept for reducing a balance owing.
• Consumer Proposals are sometimes referred to as “Debt Settlement Proposals” but it’s important to know that a debt settlement offer that is legally binding on your creditors and provides you with the full advantages of a Consumer Proposal can only be filed by a Licensed Insolvency Trustee (formerly known as a Trustee in Bankruptcy).
• Licensed Insolvency Trustees are the only debt help professional authorized and endorsed by the Federal and Provincial governments to help consumers manage their debts. Working with a Licensed Insolvency Trustee ensures you are receiving debt help from a fully qualified and reputable professional and getting the benefits and protection of your consumer rights and transparency throughout the process.

Learn More About Government Debt Forgiveness

Should I Consolidate my Credit Card Debt?

Credit card consolidation can help you successfully pay off your credit card debts, provided that your consolidation can meet some key metrics needed for success. Before entering into any consolidation agreement, consider how your overall plan looks when it comes to:

• Total Cost of Consolidating
  • Is your consolidation coming with additional cost such as administration charges, loan brokerage fees, penalties etc.?
  • How does the interest rate add up in relation to your repayment term? Will you be paying more interest in total over time?
• Monthly Payment
  • Can your budget comfortably support your monthly payment?
  • Are there additional debts besides the credit card consolidation that will still need to be paid separately?
  • How long can you realistically commit to the monthly payment for?

It’s also important to be certain that you will be able to refrain from continuing to use your credit cards (or other credit) as you are working through your consolidation. Accumulating new credit card debt can make your consolidation difficult to repay, aggravating the problem all over again.

How Much do Consumer Proposals Cost Compared to Consolidation Loans?

If you are able to secure a consolidation loan with an interest rate that is less than what you are paying on your current debts, and with a reasonable repayment term, consolidating will often save you money overall. You may also save money in that the size of the monthly payment needed is often lower– not to mention that it’s much easier to organize one monthly payment rather than several.

At the end of the day though, you are still repaying all your debt with interest. For example:

• If you have debts totaling $10,000 at an 18% interest rate that you’re trying to pay off without consolidation over a 3-year period, you’ll pay approximately $360 per month.
• With a consolidation loan at a 12% interest rate to pay off that debt instead, you would pay around $330 per month.

Not much of a difference monthly is it? The cost-saving benefits that come with “automatic no interest” are considerable; choosing a Consumer Proposal can make a huge difference to your day-to-day cashflow. Using that same example, a Consumer Proposal could work out to an example like this:

• Total debts of $10,000, reduced to 60% repayment (to settle in full) over a 3-year period, resulting in monthly payments of around $165. What could you do with that extra $165 a month?

Because Consumer Proposals are offered exclusively through Licensed Insolvency Trustees there are no additional (or hidden) costs to making a Consumer Proposal. Licensed Insolvency Trustee fees are tariff-based in a Consumer Proposal and are set by the government. This means that there is no “fee for service” and essentially these administrative costs are borne by your creditors. You are not required to pay anything above and beyond what you are offering to your creditors in your monthly payment. If your Consumer Proposal calls for $165 monthly payments, you will only pay $165/month!

Learn More About How Licensed Insolvency Trustees Get Paid

How Long Does a Consumer Proposal Take Compared to a Debt Consolidation Loan?

Because Consumer Proposals are so versatile and are tailored to each person’s unique situation, the length of time they last for can vary greatly – and they can be paid off early at any time without penalty. Terms of 24 to 48 months are very common, but depending on your specific terms, your Consumer Proposal could take a month or two from official start to finish, or call for payment terms with a maximum length of 5 years.

Debt consolidation loan terms can also vary depending on how much debt you have and how much you can afford for a monthly payment. Although terms between 24 and 60 months are most common, terms from as few as 6 months all the way up to 84 months or longer may also be available.

A Consumer Proposal can be processed quickly if you have an urgent situation and need a near-immediate solution to prevent your creditors from pursuing you for payments or taking legal action.

How Does a Consumer Proposal Affect my Credit?

A Consumer Proposal will show on your credit history for three years from the date your proposal is finished or six years from the date it started, whichever comes first. This notation does not prevent you from seeking new credit at any time, and, following their Consumer Proposal, many people find that they are able to achieve a high credit score faster than if they were to pay off the debts on their own.

If your credit rating is strong enough to qualify in the first place, taking on a debt consolidation loan can boost your credit rating in time, provided you are able to consistently make all your payments on time, every time.

Any time that your debts are not paid in full according to the original borrowing terms your credit rating will take some impact. It’s important to remember that sometimes a short-term pain can have some significant long-term benefits. For example, taking a short term hit to your credit rating but dealing with your debts once and for all and being able to save some money each month can put you on a much better financial path than preserving perfect credit by making high interest payments each month and never accumulating any savings.

What You Need to Know After your Consumer Proposal is Finished

Debt Consolidation Services

When you have decided you need to deal with your financial situation there can be a lot of pressure to find a solution right away. It’s important to realistically take stock of your situation as well as your needs and wants when it comes to a debt-free plan.

We recommend you consider the following:

• Can you afford to consistently repay 100% of your debt with monthly payments over a 3-5 year period?
• Are any of your creditors threatening legal action?
• Do you need to deal with a government debt like taxes or student loans?
• Could you manage multiple debts if you cannot consolidate everything into a loan?
• Are you confident you will not take on new debt until the current debts are paid?

Consumer Proposals are a solution many people have not heard of, but they can be a successful alternative to traditional debt consolidation loans as well a superior alternative to many credit counselling programs.

Remember, a Consumer Proposal can:

• Consolidate virtually all debts (including government debt) without borrowing
• Cut the amount of debt you must repay
• Stop all future interest
• Legally bind your creditors
• Save you money and reduce your monthly debt payments
• Give you breathing room from your debts and creditors

When it comes to your finances, working with a Licensed Insolvency Trustee can provide you with another invaluable component to debt help – support and understanding. At Sands & Associates our debt help professionals are not pressured to meet lender sales quotas, or pass judgment for the circumstances that caused you to seek a debt solution; our goal is simply to help you reach your goals and support you as you strive towards your debt-free future. We believe that everyone is entitled to live with dignity, without debt and its overwhelming stress – and the tools, resources and professional knowledge we share can make all the debt-free difference.

We’re here to help you assess your situation, understand all the options available to you, and work together to build a plan that will get you to debt-free, often more quickly than you thought possible. Confidential consultations are always free and without obligation.

Find out how a Consumer Proposal could help you cut debt and get a financial fresh start. Book your confidential free debt consultation with a caring BC debt expert today.

The post How do Consumer Proposals Compare to Debt Consolidation Loans? appeared first on Sands & Associates.