Creditors’ collection remedies are currently hindered due to the COVID-19 pandemic and the closure of courts except for urgent matters. If you are carrying significant debt to many different creditors, take this time to investigate if a consolidation loan (borrowing one amount to pay off your various debts and thus consolidating into one monthly payment) can provide you a plan to pay off your debt.

You should consider the following before signing for a consolidation loan:

  1. Analyze the interest rates on all of your current debts and the interest rate you are being offered on a consolidation loan. You may want to exclude consolidating debt that is currently at a lower interest rate (interest on student loans is typically lower and currently being waived due to COVID-19).
  2. Ensure you are not stretching the payments over a significantly longer period of time. The plan should be to pay off your debt in five to seven years.
  3. Do not be tempted to borrow additional amounts to cover unexpected future expenses. It is not advisable to increase your debt and incur interest charges to have some savings in your bank account.
  4. Analyze why you had to incur your debt to start with. If you are too lenient in helping family or spending too much on entertainment or lottery tickets, now is the time to make changes in your financial decisions.
  5. Cutting up credit cards to avoid getting back into debt again. You may want to retain one card to use for groceries and gas and pay it off in full every month.
  6. Creating a budget that ensures you can pay the monthly consolidation loan payment in addition to your monthly living expenses. You will want to ensure the consolidation loan payment is paid on time every month.
  7. If you are unable to obtain a consolidation loan to pay off all of your debt, consider obtaining a loan for just your high-interest bearing debt. This will still reduce the number of creditors you pay monthly and the interest expense.
  8. Contact a few different financial institutions to see where you can get the best rate. Analyze all charges and what the total cost of borrowing will be.
  9. Avoid obtaining a co-signor in order to be eligible for the consolidation loan. You don’t want anyone to be left responsible for paying your debts in the future.

If a consolidation loan will not provide you with a solution to pay off your debt, consider speaking to Taylor Leibow Inc., Fresh Start Now about filing a consumer proposal or assignment in bankruptcy.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)