Page 42 - A Canuck's Guide to Financial Literacy 2020

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Debt Consolidation

Debt consolidation is a popular strategy to paying down debt quicker. It’s a strategy where
you would combine all your current debts, preferably two or more, into one monthly
payment. Debt consolidation is a popular strategy as it can simplify your finances and
increase your monthly cash flow as consolidation of debt would happen a lower interest rate
than what you would be paying now. Typical strategies would involve taking advantage of:

Credit Card Balance Transfers
▪ Certain credit cards allow you to combine the balances of multiple cars into one
at a lower interest rate. There may be a one-time fee in doing so.
Debt Consolidation Loans
▪ You may apply for a debt consolidation loan at your local bank. Upon approval,
the bank would combine all your debts into one at a lower interest rate than
what you would be paying now. This type of strategy makes sense of people
who have many credit cards with one bank.
Debt Consolidation Programs
▪ Through a debt consolidation program, your creditors would work together with
a credit counselling agency and negotiate to roll all your debts into one monthly
payment.
Home Equity Loans
▪ Home Equity Loans are popular if you own your own home. You may use the
home as a collateral to obtain a loan at a lower interest rate than what you’re
paying now.
Lines of Credit
▪ One of the most common strategies is to obtain a line of credit. A line of credit
can be secured or unsecured and is offered at a lower rate than what you may
be paying now on your credit card. Upon approval, it’s recommended that you
roll your debts into the line of credit in order to have one monthly payment.

Automate Your Payments

Knowing when your payments are due is important. A great way to stay on top of your debts
is to know when they’re due. The easiest way to manage this is to set up automated
monthly payments through your online banking platform. Missing payments on credit cards
is critical and can affect your credit score. Automating your payment is highly recommended
if you live a busy life or have multiple credit cards or loans.

Cancel Your Credit Cards

Cutting credit out of your life can help you live stress free while encouraging you to stay
within your means. For individuals that have more than one credit card, you may be thinking
of cancelling one or two in order to avoid accumulating more debt. It’s recommended that
you have at least one credit card in order to build a credit score but always make sure to
pay the credit card at the end of each month.