Your situation may seem desperate, but don't despair: debt consolidation may help you get back on track. Debt consolidation involves borrowing money from one lower-interest lender to pay off your debts with other higher-interest lenders.
These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors. The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.
If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.
Favorable payoff terms include a lower interest rate, lower monthly payment or both.
There are several ways consumers can lump debts into a single payment.
Debt consolidation means taking out a new loan to pay off a number of liabilities and consumer debts, generally unsecured ones.
In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable payoff terms.
If you keep up those payments, you'll end up paying 61 in interest over eight years—and that's assuming you don't put another dollar on that card.
With debt consolidation, you could take out a ,000 loan with a 9.5% interest rate and use that loan to completely pay off your credit card.
Theoretically, debt consolidation is any use of one form of financing to pay off other debts.
However, there are specific instruments called debt consolidation loans, offered by creditors as part of a payment plan to borrowers who have difficulty in managing the number or size of their outstanding debts.
Almost all Canadians will take on some form of debt in their lives, and as an Albertan, you're likely carrying more than your neighbours in other provinces.