Should I get a debt consolidation loan to avoid personal bankruptcy in Kitchener?

Every week I meet with people in our Kitchener personal bankruptcy office who have more debt than they can handle, and they are considering their options. One option many Kitchener residents consider is to get a debt consolidation loan to help manage their monthly payments.

In theory, a debt consolidation loan makes a lot of sense. Instead of having lots of payments on many debts at different times of the month, you consolidate and only have one payment, once per month, and that one payment may be lower than what you were paying before.

Debt consolidation loans make sense if you are "trading in" a high interest credit card payment for a lower bank consolidation loan interest rate, and if you can afford to make the new payments.

Unfortunately, in my experience meeting with thousands of people in the Kitchener area over the last ten years, there are two big problems with debt consolidation loans.

First, if you got into financial trouble because you spend too much, getting a debt consolidation loan won't solve your problem. If you pay off your credit cards with a consolidation loan, and then build up your balances on your credit cards again, you now have more debt than you had before! You are worse off.

Second, I have seen hundreds of people who don't qualify for a loan at a bank, so they go to a finance company and end up with a new loan at 30% interest, so they could pay off their 18% interest credit cards. They are now paying more in interest, over a longer period of time!

If you live in Kitchener and have more debt than you can handle, before you get a debt consolidation loan, do the math. Make sure that you can afford the payments, and if you get the loan, cut up your credit cards so you don’t get back into debt.

For many people, a consumer proposal makes more sense than a consolidation loan. It’s a way to deal with your debts without having to pay sky-high interest rates. Of course there is also the final alternative of personal bankruptcy to deal with debts.

Our professionals are available every weekday to help you decide if a debt consolidation loan is the correct answer for you, so e-mail us or give our Kitchener office a call at (519) 747-0660 or 310-PLAN to ask a question or to arrange a free initial consultation.