Personal Loans as a Way to Manage Excessive Debt A personal loan by a bank or another financial institution is one way to manage excessive debt. Many consumers use multiple high-interest cards and lines of credit and borrow excessively. Personal Loans A personal loan can be used for debt consolidation whereby borrowers benefit from a fixed or lower interest rate and affordable monthly payments. Banks in Calgary Alberta, Montreal Quebec, Toronto Ontario, Vancouver British Columbia, and other cities across Canada offer personal loans. Banks usually offer two types of financing – secured and unsecured, and the former requires that borrowers pledge some asset to guarantee prompt repayment. Most financial institutions offer secured loans because they take less risk when collateral is offered. Interest may be tax deductible, and the interest rate is lower which makes payments affordable. On the downside, failure to make payments could result in repossession. Borrowers could lose their home, vehicle, retirement fund, or life insurance. When it comes to benefits, consolidation is one way to manage and repay your loans. Another benefit is that borrowers are not required to pay late payment fees and other penalties. Borrowers can choose between fixed and variable interest rates and flexible monthly payments. There are other alternatives such as debt settlement, credit counseling, and negotiation with creditors. Options to Consider You can use different financial solutions, including: Overdraft Line of credit Loan from friends or family Second mortgage or home equity loan Low interest credit card Consumer proposal Whatever option you choose, most financial institutions require a very good or decent credit score which shows that the applicant is a low-risk borrower. Home equity loans come with lower interest rates than unsecured debt, but even if collateral is offered, banks may still require a cosigner with a very good credit score. This is the case when the borrower has a high debt to income ratio, excessive debt, or poor credit score. Second Mortgages and Sub-Prime Lenders to Reduce Your Debt Load If you opt for a second mortgage, you may get a higher interest rate or the same rate as on your first mortgage. Check with different banks and credit unions. If locally-based banks are not the best choice for obtaining personal loan, you may want to contact big banks in Halifax, Montreal, Ottawa, Winnipeg, Edmonton, Toronto, Regina or elsewhere in Canada. One problem is that banks are often unwilling to offer small mortgages, and your application may be turned down. The minimum mortgage amount can be $10,000 or higher. What is more, banks will consider your application only if you have enough equity. An alternative to personal loans is to use an overdraft or line of credit. In addition to brick-and-mortar banks, there are sub-prime lenders and finance companies. The downside is that they offer high interest rates of up to 30 percent. The interest rate is high because many finance companies serve high-risk borrowers, and the risk of default is higher. Thus, this is a short-term solution to your financial problems. When a Personal Loan Is a Good Idea The most important factors are the interest rate, repayment schedule, term, and amount borrowed. Credit unions usually offer lower interest rates than banks. If you are a member, check with your union first. Online banks also offer competitive interest rates because they save on overheads. Ultimately, the goal is to deal with the problem, and the borrower’s income and expenses are also important factors.