Types of debt consolidation options in Alberta.Of all the provinces in Canada, Alberta records the highest amount of debts on average. Fort McMurray inhabitants, one of the cities in this province, have a record of holding up to $30,000 in consumer debt.
Carrying such huge debts will not be an issue if most of them can pay off their debts on time. However, this is not the case. In 2017, Alberta’s delinquency rate went up by 14 percent compared to the previous year’s first few months. In 2019 the delinquency rate was at 1.53 percent.
It is apparent that Alberta’s people do not make enough or have enough money to pay off their debts. Struggling with months or even years of accumulating debt is bad for your financial portfolio and your credit.
The good news is there are different services and schemes available in Alberta to help residents relieve some debt. One popular option is debt consolidation.
What is Debt Consolidation?
Debt consolidation refers to a debt refinancing process that involves taking out a loan to pay off other debts and liabilities. This process provides finances for individual consumer debts typically. Still, it can also consolidate corporate debt or government debt.
This process’s advantage is it secures funds at a lower interest rate, lower monthly payments, or both. People apply through the bank, their credit card company, or credit unions—the funds take care of credit card debt and other liabilities.
Debt Consolidation Loans in Alberta
According to a report released by Equifax in 2020, 13.3 percent of Alberta’s credit users missed more than three months of their debt payment. This statistic effectively leaves Alberta the highest debt-carrying Canadian province on average.
However, with the different debt consolidation options available in Alberta, residents can pay off the large consumer debts that they carry.
Debt consolidation offers a lump sum of money with more favorable interest rates and repayment terms. Debt consolidation can help boost your credit score by avoiding extra fees on missed payments.
In Alberta, there are three different types of debt consolidation loans that you can choose from, and they include:
- Secured Loans
You will need to provide collateral to qualify for a secured loan. You can put up things like a property or any asset you have. Secured loans often have lower interest rates, unlike their unsecured counterpart. However, if you are to default on your payment, you will lose whatever you put up as collateral to secure the loan.
The collateral you put up determines the amount you can collect. You can put up assets like equity in your home, property, and valuable items like a vehicle or jewelry.
The maximum amount loanable is usually $50,000. The terms for this type of loan typically range from some months to several years.
Before you apply for this type of loan, there are some crucial factors to consider:
- Lender’s requirements —the lender will have some requirements for you to meet. It would help if you satisfy most of these requirements, or this loan may not be suitable for you.
- Collateral —you cannot get this type of loan without collateral to secure your loan. You should consider if you have the right collateral to put up for this loan.
- Repayment —you should carefully examine the situation and be sure you will not default on payments. Losing your collateral will leave you in an uncomfortable place, especially if you put up your home equity or savings.
- Unsecured Loans
Unlike secured loans, you don’t need to put up any asset as collateral to secure this loan. However, to get this loan, you will need to have a good credit score.
The advantage of this loan is that you will not have to worry about losing an asset as collateral. However, if you fail on your loan repayment, your credit score will be affected.
Unsecured loans are usually paid back in monthly installments over a fixed period. To get a reasonable interest rate, you will need a good or excellent credit score. However, don’t expect your interest rate to be as low as a secured loan, as your lender will be taking on more risk to provide you with funds.
- Guarantor Loans
In some cases, you may need to get a guarantor to help you qualify for a loan. If your credit is poor, a guarantor loan is an option for you.
It is traditionally an unsecured personal loan guaranteed by someone with good credit by signing on to your loan. This concept means the person will have to pay back what you owe if you are unable to.
Moreover, before someone is eligible to be your guarantor, he or she will have to meet specific requirements:
- A good credit score —before someone is allowed to guarantee another person’s loan, they must have a good or excellent credit rating (650 and above).
- Employment history and housing —a guarantor, has to be someone who has a stable job. They will also need to state their address and how long they’ve lived there.
- Residence —some lenders will demand that the guarantor is someone who has lived and worked in Canada for a particular time.
- Good earnings —a guarantor will most likely need to show income enough to pay off your debt if you default on your payment.
- Age —in most provinces, your guarantor will have to be over 18 years. He or she will need to show a government-issued ID.
As an Albertan, you can benefit from debt consolidation loans. Study alternative options that could help you get out of debt but pay attention to your credit score.
Your credit score is the primary determinant for debt consolidation. To minimize the impact on your credit score and your financial portfolio, you should make an informed decision. You can consult a financial expert to help you.