It is perfectly normal to accumulate a certain amount of debt in some periods of your life, but this situation must eventually be resolved before it reaches crisis level. Most people want to avoid bankruptcy at all costs, which forces them to look for a suitable way to consolidate their debts and bring them under control. Let’s examine some common strategies that can be used to this end:
Commercial consolidation loans
Most banks offer these products in some form or shape, but the conditions vary greatly. The general principle is that the lender will cover your outstanding debt (and maybe even give you additional funds), in exchange for a new loan agreement, usually with a lower APR. Such loans typically create immediate relief, but extend the amortization period to include a few more years, thus prolonging the struggle. This solution has dubious long-term value, but in some cases, it simply represents the only viable route for clearing a runaway debt.
Canceling little-used credit card accounts
It’s so easy to get a credit card these days that many people hold several at the same time without any good reason. Fees and interests can add up really quickly when you are using several cards, while it’s much harder to control your spending that way. Getting rid of unnecessary instruments of credit is a painful but essential step towards your newfound economic freedom. A single credit card should be sufficient to take care of any ongoing financial needs, so all others are simply a luxury that chips away at your monthly budget.
Drawing funds from life insurance
A temporary shortage of cash to settle your credit obligations can be bridged by taking a certain amount of money set aside in your life insurance account, assuming your policy allows for such transfers. Needless to say, this is a very risky strategy that might end up doing more harm than good. True, this can be a better alternative to taking an unfavorable consolidation loan, although it should be invoked only when all other options fail. If you undertake this maneuver, you need to make sure you can return the funds back to their original account without too much delay.
Applying for a mortgage loan renewal
According to Canadian law, every mortgage holder is free to renegotiate their contract at any point, and this opens some opportunities for debt consolidation. If your old mortgage has too high APR, a well-timed mortgage renewal could be a convenient way to bring the debt installments you have to deal with every month to a reasonable level. You can also upgrade your home with a new loan, so this is a win-win scenario that should be pursued whenever possible. However, if your credit score isn’t high enough or your paperwork is incomplete, this course of action won’t be attainable.