Is a Loan the Way to Squash Your Debt?

It’s no secret that living with burdensome debt can have a seriously negative impact on a person’s quality of life. The stress that comes with being unable to meet your financial obligations is very real, and in many cases, unpaid debt can lead to legal complications.

If you are unable to fulfill your loan repayments and the total amount of debt that you owe is greater than the sum of your assets, then you’re insolvent. It makes sense for this to be a stressful and difficult time, however, you should know that you’re not alone and you have options. 

No Need to Hide from Debt Any Longer

You certainly aren’t the first person to go through what you’re going through. People don’t typically bring up topics like massive student debt or bankruptcy in common conversation. It’s still taboo to discuss sensitive financial matters in public, but that doesn’t mean you have to avoid dealing with the problem the same way you avoid chatting about your money woes with your coworkers. 

Just click here to start finding out what debt relief can really look like for you. Genuine debt relief is meant to lift a weight off the shoulders of the debtor and give them a second chance. After all, honest and hardworking people fall into insolvency all the time due to external pressures beyond their control. 

One way that individuals can get back on top of their finances is by immediately paying off all their debts using a consolidation loan. This might sound like a magic solution, but it’s actually quite complicated and should be taken seriously. Here’s what you need to know about this debt relief option that allows debtors to pay off their consumer debt by making regular monthly payments.

What Is Debt Consolidation?

Debt consolidation combines all of an individual’s outstanding unsecured debts and comes up with a monthly payment that is less than the sum of monthly payments prior to the consolidation. There are three main types of debt consolidation: loans, proposals, and informal agreements. 

Let’s focus on the debt consolidation loan. In cases where an individual qualifies for one, a debt consolidation loan can be taken out from a bank, loan institution, or credit union. It’s most commonly used to pay off credit cards as well as other outstanding unsecured consumer debts. These loans are often taken out as home equity loans, which can be problematic.

For some, paying off debt with a loan makes sense as the best way to get control over debts and learn how to manage their credit in the long-run. The downside of this option, however, is that it can quickly become a compounding issue that grows into bigger and bigger debt.

More Debt

Those who have a hard time handling their own credit cards may continue to use them after getting the loan. That means that on top of paying back all the new debt, they are also collecting new debt on their credit cards and more interest, too. 

The fact that this loan is commonly used through home equity means that what was once the unsecured debt is now tied to physical assets. In the case of a bankruptcy or consumer proposal, debt consolidation loans do not qualify. As such, it’s often best for those who are trying to get a new lease on life to pursue other debt-relief options that lift them out of debt. Luckily a good bankruptcy trustee can show you just how to do that.