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Take the Mystery Out of Debt Consolidation with Poupart Trustee Inc.

Assets, liabilities, short-term and long-term debt: do these concepts mean nothing to you? However, these concepts are of prime importance when it comes time to obtain debt consolidation. But what is debt consolidation?

Definition

Debt consolidation consists of a financial transaction involving a debtor and a lending institution. It does not require any intervention from the Court, in contrast to bankruptcy and consumer proposal. It enables the debtor to repay all his debts and not just part of them. Unlike the other two procedures mentioned above, it protects the debtor from his creditors only if the debtor repays the consolidation loan in accordance with the terms of the loan agreement.

The objectives of debt consolidation

Admittedly, the main objective of debt consolidation is to pay all your debts. However, this financial transaction, which is settled out of Court, contrary to bankruptcy and consumer proposal, also contributes to savings for the debtor, by consolidating all his debts into one single loan, which is less costly in terms of interest. In fact, that one single loan often covers all kinds of debt, such as credit cards, personal loans, student loans, taxes, and even second-chance credit loans that in some cases have higher interest costs. In addition, given the reduction in the interest rate, the debtor pays off all his debts much more quickly. And lastly, debt consolidation also enables the debtor to avoid forgetting to make payments, as he has only one monthly payment to make.

A solution not available to all debtors

Despite all the attractions of debt consolidation, it is not automatically granted to everyone. In fact, a borrower with a poor credit report won't be able to take advantage of this option, as financial institutions base their decisions on the borrower's credit rating to determine eligibility for a loan, whether or not it is a consolidation loan. First, the borrower has to find a financial institution that will agree to give him a loan. Even with a good credit rating, it's possible that the consolidation loan application may be rejected due to debt-equity ratio and/or occupational status. There is nothing to prevent the debtor from applying to another lender, but it should be noted that each debt consolidation loan application results in a note on the credit report, which will lower the credit rating and, with it, will decrease the chances of obtaining financing elsewhere. Financial institutions are not fooled and know that when a borrower makes two or more applications for financing close in time to one another, there is a good chance that the borrower is in a real pinch. That's why it's better it's better to opt for a solution other than debt consolidation.


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