When you’re struggling to meet your regular monthly debt requirements, your stress levels can go through the roof and you may just hear those advertisements for debt consolidations and assume that this is your best option for debt relief. Many debt companies and even trustees in bankruptcy target the words debt consolidation and even tout their services as a debt consolidation – but the question is, are they? Is a consumer proposal a debt consolidation?
In theory, a debt consolidation is consolidating your debt into 1 payment. While a consumer proposal does this, it also involves the added benefits of reducing the amount you owe creditors, making a reduced monthly payment, and stopping interest payments to creditors – they are not going to like this but it is a legal option so they have no choice. This is why a consumer proposal can have a negative impact on your credit report.
However, in a conventional debt consolidation, you receive a loan and then your creditors are paid off in full according to your original contract terms – your credit (if you haven’t been making late payments and all your cards are not maxed out) remains preserved.
The reason many people file proposals regardless of the short term hit to credit is because:
- Debt is consolidated into a single payment
- Debt is reduced
- Collection action by creditors stops
- Interest is stopped
It is a very fast way to get out of debt – relieving your financial stress and giving your more financial freedom.
What many don’t know is that, if you own your home and have enough equity to finance part of the sum of your debt, you can even look at an informal proposal. This is where a proposal is put forth, but the proposal is paid in full at the time it is accepted. This is the fastest way back to good credit because the proposal is off of your credit 3 years from when it is paid in full.
Any way you look at it, if you think you need a debt consolidation – conventional debt consolidation or consumer proposal, it’s time to act. The longer you wait, the more interest you’ll pay and the larger the impacts to your credit report.
At Prudent Financial, we are committed to helping you with all of your financial needs. If you want to talk about a debt consolidation with little to impact to your credit.
Call us today at 1-888-852-7647.