905-279-7000 jim@jameswalker.ca

James B.

Walker & CO.

Licensed Insolvency Trustee

Call us at

(905) 279-7000

There are many types of consolidation loans such as home equity loans, personal lines of credit, or transfers to a zero percent interest credit card. You should be very careful when looking to a consolidation loan as a quick fix to your credit problems. A consolidation loan may give you a quick fix, but will not give you a credit cure. 

Most people who take out a consolidation loan to pay off their credit card debts end up with the same credit card debts within a year or two after obtaining the loan. 

The main problem with a debt consolidation loan is it feeds your spending tendencies which got you into trouble in the first place. By taking on another new creditor you may be increasing your debt problems. 

The another problem you may in counter is you may not qualify for the very low interest rates you have seen advertised. In fact, if you have been struggling with your debts for a period of time the interest rate on your consolidation loan may be higher than the rates you are paying now. 

✘   Zero-Percent Credit Card

There are many advertise zero-percent credit cards as a method to reduce your debt pressure. Lenders offer this low rate as a method of attracting new customers. The lenders are usually targeting consumers with better credit ratings. If you are struggling with your debts you may not be able to take advantage of this option. 

You should recognize these zero-percent rate on these types of credit cards will not last for ever. Make sure that you know when the low rate will end and what the true interest rate will be. You should also look for any hidden fees and charges that may increase your actual cost of credit. 

The only way a zero-percent credit card will work is if you meticulously pay the balance down before the low interest rate expires. Paying the minimum on your zero-percent credit card will not assist you in improving your credit problems. 

✘   Debt Consolidation Loan

The major appeal of a debt consolidation loan is its convenience. You will only have to make one loan payment per month, at one interest rate, rather than paying many creditors, at different times of the month, who are charging different interest rates. Sounds easy enough, doesn’t it. But, that doesn’t mean it will save you any money.

You should check the interest cost of your consolidation loan are less than the interest you are already paying to your various creditors. If you cannot supply security for your consolidation loan the lender may actually charge you more interest than you are currently paying.

✘   Negatively Affect Your Credit Rating

Your credit rating may be negatively affected if you open new consolidation loans or credit card accounts every few months. Consolidation loan lenders often require you to close historical credit accounts when they grant you a new loan. Closing accounts has a negative impact on your credit score.