Debt consolidation may be an effective repayment strategy for someone juggling monthly debt repayments. In simple terms, debt consolidation allows you to replace one or more debts with one, so you only make a single payment every month.
While there are different ways to consolidate debt, a personal loan can provide an easy path to becoming debt-free.
How debt consolidation with a personal installment loan works
The first step to consolidating your debt is adding up all your outstanding balances. Consider all credit cards that carry a balance as well as any unpaid loans.
Once you know exactly what you owe, you will need to apply for an installment loan that is enough to cover that amount. You will typically use the funds from your loan to repay all your lenders, which leaves you with just one monthly payment for your new loan.
Debt consolidation will not get rid of your debt but will make monthly payments more manageable.
How to apply for a personal installment loan to consolidate debt
To be eligible for an installment loan, all applicants must be 19 or older with a chequing account and verifiable source of income.
Lenders also usually look for a good credit history. While every lender may have their own application processes, most applications involve these steps.
- Step 1: Create an account on your lender’s website or visit one of their brick-and-mortar branches.
- Step 2: Fill out an application form providing basic details about yourself like your name, address, income, the loan amount, and reason for borrowing. You may be asked to attach documentation such as paystubs, proof of identity and address.
- Step 3: Wait for approval. This varies from case to case and could take a few minutes or a couple of days. The lender may request additional documentation, which could take another day or two to process.
- Step 4: Once you have been approved and signed your loan agreement, you will receive the funds directly in your account. If you are applying in person, you have the option to receive same-day cash.
Benefits of debt consolidation with installment loans
Consolidating debt using an installment loan has some great benefits for someone struggling to keep track of monthly payments.
- Fewer payments to keep track of: Paying off two or more credit accounts at a time can be tricky. Replacing multiple bills with one loan means you have just one monthly payment to keep track of.
- Lower monthly payments: You can benefit from lower monthly payments if you agree to a longer repayment period. You may pay more in interest this way, but the added cost may be well worth the convenience for some borrowers.
- Lower monthly interest rate: Some borrowers may be able to secure a personal loan at an interest rate that is lower than what they are paying on existing credit accounts. You may also benefit from a fixed interest rate if your debt rises because of variable interest rates.
The bottom line
Debt consolidation using personal installment loans can be a great strategy to bring your debt and finances under control.
Look for reliable lenders and read your loan agreement carefully. Before signing the agreement, ensure you understand and are comfortable with your monthly payments and APR.