Take control of your debt.

Are you having problems with debt? Do you own multiple credit cards with overdue payments? Are you finding yourself dealing with collections calls every month? A debt consolidation mortgage can help you take control of your debt.

At The Mortgage Centre KW, our debt consolidation mortgages are the perfect solution for people struggling to manage growing debt problems. For many people in Ontario, debt consolidation is the first step on the road to becoming debt-free.

Debt consolidation mortgages are a way to replace high interest debts with better interest rates and lower monthly payments. When compared to other forms of debt, mortgages tend to offer better rates, since they are secured against the collateral of your home.

Debt consolidation is a great choice if you have debt from a number of sources, such as multiple credit cards or an unsecured line of credit. It will help to ensure you can keep track of your debt more easily, establish a better budget for your spending, and start to improve your credit score going forward.

How Does Debt Consolidation Work?

Debt consolidation reduces your monthly payments by combining multiple sources of outstanding debt into a single source — either a loan or the mortgage on your home. We typically recommend mortgages for debt consolidation, since securing your debt against the equity of your home will often reduce the interest rate you are being charged.

In order to qualify for debt consolidation, you must have a home or some other collateral that you can use to secure a loan. You must also be working or have some source of income, in order to show that you will be able to make monthly payments going forward.

Debt consolidation will not eliminate any of your debts. It may reduce interest rates and monthly payments, but this will depend on your current credit score. If you have a poor credit score, you may not be eligible for debt consolidation. To learn more about consolidating your debt, contact our team today.

Your Options for Dealing With Debt

Beyond debt consolidation, there are a number of other options for dealing with debt. These options may be necessary if you are ineligible for a debt consolidation mortgage or loan.

Debt Settlement

One option for dealing with debt is a direct settlement with your creditors. A debt settlement will not have the same level of impact on your credit score as a consumer proposal or bankruptcy, nor will it require working with a Licensed Insolvency Trustee (LIT). You will take a short-term to your credit rating, but it should easier to build a good score back up.

Debt settlements are typically negotiated directly with creditors, often through a third-party advisor or consultant. Once the settlement is agreed upon, your debts with that creditor are erased. You may agree on a lump-sum payment or monthly payments, depending on the terms of your settlement (similar to a consumer proposal).

In general, debt settlements are less common than consumer proposals. Most creditors understand how to negotiate favourable terms and prefer to settle debts through LITs. Some debt consultants will charge unnecessary fees as part of a settlement, so be careful when selecting a debt consultant.

Consumer Proposal

Submitting a consumer proposal has many elements in common with declaring bankruptcy. Similar to a personal bankruptcy, you will need to work with a Licensed Insolvency Trustee (LIT) and some of your assets will be protected while you go through the process.

The major difference is that a consumer proposal means you do not have to attend bankruptcy court. This option allows you to settle your debt out of court, by drawing up a plan to repay creditors using your existing assets. Often, you are able to negotiate lower payments as a result of this process. Creditors know that accepting a consumer proposal is more advantageous than having you file for bankruptcy.

While consumer proposals are a better option than bankruptcy in most cases, they will also leave a permanent mark on your credit record. Just like a bankruptcy, a consumer proposal will make it hard for you to secure loans or a mortgage going forward. It will take time for you to rebuild your good credit.

Personal Bankruptcy

Bankruptcy is a scary prospect. Many Canadians perceive it as the only way to escape from overwhelming debt, but the truth is that bankruptcy is simply one of many options for dealing with debt — and often it’s not even the best option.

In order to declare personal bankruptcy, you must speak with a Licensed Insolvency Trustee (LIT). An LIT will be able to verify that you are insolvent and unable to meet your monthly debt payments, then go through the paperwork of filing for bankruptcy with the Office of the Superintendent of Bankruptcy

This process will grant you protection from legal action, collections, wage garnishments, foreclosures, and repossession, but it will place your assets entirely in the hands of your trustee. After you have declared bankruptcy, your trustee will be responsible for managing claims from your creditors against your assets.

Certain assets are exempt from bankruptcy in Ontario, including a primary home with less than $10,000 in equity, a single vehicle worth under $6,600, household furnishing, trade tools, clothing, medical devices, and more. However, you are likely to lose any non-exempt assets to your creditors. Most importantly, a personal bankruptcy is a permanent mark on your credit record and it may make it difficult for you to secure loans or a mortgage in the future.

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