Without realizing it, Antoine amassed large balances on his credit cards. He is also paying off a personal loan he took a few years ago. He feels he is paying in a vacuum and wants to take responsibility for his financial situation.
Because despite the monthly payments, his debt never diminishes.
It must be said that due to the fact that interest rates on his credit cards fluctuate between 18 and 20%, the debt of $ 30,000 is costing him dearly. He also has a $ 10,000 personal loan payable at 9.5% per annum.
Antoine would like to find a solution other than bankruptcy or a consumer proposal.
He decided to consult a consultant with Jean Fortin et Associés, a firm of licensed insolvency officers, to learn more about the various options available to him.
Get your finances in order
“Each case has its own characteristics, and it is impossible to determine which one is best for us based on someone else’s experience,” emphasizes Pierre Fortin, President of Jean Fortin et Associés.
Therefore, it is better to quickly consult with a specialist in order to make the most correct decision in our situation.
As for Antoine, given his income ($ 75,000 a year), debt consolidation seems to be the right decision.
This allows you to group all your debts into one so that you only have one monthly payment.
To do this, you ask for a loan from your financial institution, which, in a sense, “buys” the debts of other creditors. Of course, since it assumes the risk of the latter, and the borrowed money is not used to buy the goods that enrich us, the interest rate will be higher than that of a regular loan, and will vary from 12 to 14% depending on the size of the loan. the strength of their credit report.
To help Antoine prepare well for his meeting with his financial institution, Jean Fortin’s advisor told him things to keep in mind and helped him in his efforts to:
- Prepare a list of your debts, their interest rate and select those at which the rate is higher than that of a consolidated loan (from 12 to 14%).
- Determine the amount of the loan he will need and the amount of the monthly payment.
- Calculate the debt ratio based on the monthly payment on the consolidated loan, not the amount of the consolidated debt. This ratio must be 40% or less to be compliant.
- Make a preliminary budget to ensure your monthly consolidation loan payment is made.
- Get a copy of their credit report and make sure it is free of errors. If you need to make corrections, please submit the required form to the credit agencies before applying for a loan.
In Antoine’s case, only his credit card debts are consolidated, since the interest rate on an individual loan is lower than on a consolidated loan.
So he applied for a loan of $ 30,000, which is a monthly payment of about $ 668 at 12%.
Previously, monthly payments on his cards were $ 900. This will save him more than $ 22,000 in interest payments over what he would have cost if he made only the minimum payment required, or $ 6,600 if he had paid off his card balances in five years. By consolidating his debts, Antoine also managed to reduce the debt ratio from 38% to 34%, which is good news.
“Antoine was fortunate that he was eligible for a consolidated loan, and given his credit report, his institution agreed to include debts belonging to other creditors. It is not always so. Also, keep in mind that financial institutions are often wary in this regard, as consumers can sometimes be tempted to go into debt again. Please note: you should never take it for granted that you will be granted this type of loan a second time, ”warns Pierre Fortin.
His financial situation:
- Patrick’s Gross Salary: $ 5,780 per month ($ 75,000 per year) – before tax
- Monthly expenses: $ 3400 (before debt repayment)
- Attachment speed: 34% (after debt consolidation)