Trying to manage debt by bringing all your debts together.

Solving debt problems is possible through what is called a debt consolidation loan – a fairly common debt reduction strategy.

A consolidation loan basically brings all your debt (credit cards, payday loans, etc.) together into one monthly payment that is manageable.  Banks, private lenders and other financial institutions offer consolidation loans.  The loans offer advantages and disadvantages to people who want to pay off debt.

One advantage is that since there is just one monthly payment, the interest rate on the consolidated debt is likely to be lower than all the interest previously paid on separate debts.  Also, with a consolidated loan there will be no negative effects on your credit rating if you are disciplined in making all of your monthly payments.

The main disadvantage of the consolidation loan is the frequent need for collateral (for example, a car) to secure the loan.

Two ways to try to overcome a debt crisis.

Debt solutions are sometimes sought through either a consumer proposal or through bankruptcy.

A consumer proposal allows you to reach an agreement with your creditor where you pay only a part of the original debt owed.  Often, future interest on the remaining debt is forgiven.  Creditors ferquently agree to this sort of arrangement when they think the debt might not be paid at all. They hope to get at least some of their money back.

Bankruptcy is another story. Through it, you become insolvent and are forgiven all your debts (with a few special exceptions).  But bankruptcy comes at a big price, which is one reason why it is often referred to as the solution of last resort. Some of what you own may be taken away, your credit rating is affected negatively, and approval for unsecured credit can be very difficult.