When it comes to finances, most of us tend to make choices that make the most financial sense. However, there is also the emotional element attached to it which forces you to try and find a balance that will challenge you without pushing you to give up. This delicate balance between your emotions and logic is a critical element when it comes to making decisions on various financial issues. On this note, debt consolidation can be the breakthrough of a tough debt journey, or it can lead to more debt. It all depends on your situation and of course, your emotions. Let us examine what debt consolidation is and whether it is a good thing to try out.
What Is Debt Consolidation?
Debt consolidation refers to the process of merging all of your unsecured debts such as credit cards, medical bills, and personal loan Canada into a single monthly repayment plan. The primary objective of this process is to simplify your debt repayment plan since you will only focus on a single bill other than worrying about several creditors every month. The personal loan Canada that you borrow is directed towards paying off all the other debts then you focus on repaying your new consolidated loan.
Debt Consolidation vs. Debt Settlement
Although these terms seem to be related, fundamental differences exist between the two. Contrary to debt consolidation, the primary aim of debt settlement isn’t to replace your existing credit with a new loan. Debt settlement is basically a careful negotiation between you or a certified credit counselor with your lenders to make a lump-sum payment for amounts that are less than you currently owe.
The creditors are not under any obligation to accept the offer or enter into negotiations. However, it’s always possible to pay a less amount of money than you currently owe if the creditor belies that what you are offering presents the best chance for him/her to recoup much of the credit.
Is Debt Consolidation the Best Way to Get Out of Debt?
Consolidating your debt or working with debt settlement companies to settle your debt isn’t the right way to get you out of your debt. If you find yourself running to debt settlers or consolidating companies, then keep in mind that you’re only treating the symptoms of your money problems and evading the real issue.
You don’t need to consolidate or settle your debts; you need to pay them off! Furthermore, debt consolidation doesn’t guarantee low interest as most people are made to believe. The debt consolidation interest is usually set at the discretion of the lender and depends on your credit score and past payment history.