Debt
Can My Bank Help Me With Debt?
Banks can offer personal debt consolidation loans, balance transfer credit cards, and mortgage refinancing with lower interest to help you manage multiple debts.
Can My Bank Help Me With Debt?
Struggling with debt can be a heavy weight to carry and often leads to feelings of helplessness and shame. It might even feel embarrassing to seek help. In this situation, it’s tempting to turn to private lenders who promise quick cash. However, often these lenders come with extremely high interest rates that can lead you into a cycle of debt.
There's a better solution, and you don’t need to look too far. Many banks offer a variety of resources and tools specifically designed to help you navigate your financial challenges and become debt-free. Your bank may have resources for supporting your debt repayment journey, and it’s a valuable resource to check before looking for other options.
How Can My Bank Help Me With Debt?
It’s time to think of your bank as more than just a financial institution that holds your money. They also have several products that help you reduce interest and free up more money to pay off debt. Your bank may offer options like:
- Credit Card Balance Transfer: If you’re dealing with debt on multiple credit cards, you can transfer them all to a card with a lower introductory rate. Some banks even offer promotional periods with 0% interest for a limited time!
This can speed up paying off your credit card debt without accruing additional interest charges. Just remember that these introductory rates eventually end, so try your best to pay off the outstanding balance before the regular interest rate kicks in. - Personal Debt Consolidation Loan: With this option, you can pay off your existing debts and combine them into a single personal loan with a lower interest rate, making it easier to manage monthly payments and potentially save money over time. Parachute also offers debt consolidation loans, with the added benefit of a personal dashboard, cash-back rewards, and a focus on rebuilding your financial well-being.
- Lines of Credit: Similar to a credit card, you'll get a credit limit that you can borrow against and only incur interest charges on the amount you actually use. This can be helpful for unanticipated expenses or strategically paying off high-interest debts.
- Overdraft protection is a line of credit attached to a bank account that acts as a safety net to avoid costly fees and penalties when transactions exceed your balance. While convenient for occasional shortfalls, this should be used as a temporary solution and not as a long-term debt management strategy.
- Mortgage refinancing: If you're a homeowner facing debt challenges, consider refinancing to replace your existing mortgage with a new loan, ideally one with a significantly lower interest rate. Redirecting this extra cash towards other high-interest debts can be a beneficial strategy. Take note however that refinancing can extend your loan term and possibly increase the overall interest you pay over the life of the loan.
Additionally, some banks offer mobile apps or online tools that track your spending to help you make informed decisions about your debt. Make sure to use these to regularly monitor your financial activity. A clear view of your financial situation can make it easier to identify and allocate funds for paying down your debt.
How to Talk To Your Bank About Debt
It might seem scary, but you can actually talk to your bank about debt. They usually have dedicated advisors or credit specialists who can provide guidance and offer solutions to help you overcome your debt burden.
Transparency is crucial when it comes to discussing finances, so be upfront about your situation and any challenges you're facing. Here are the key financial documents and information to prepare before your meeting:
- Credit score
- Credit report
- Income and expenses
- List of debts and monthly payments
- Financial goals (e.g., reducing monthly payments, becoming debt-free)
Sharing complete and updated info plus short-term and long-term goals will help advisors tailor recommendations to align with your objectives. Keep an open mind and listen attentively. As debt management professionals, they can provide valuable insights and strategies that you may not have considered on your own.
What to Consider
When you apply for a loan or line of credit, banks will first assess your creditworthiness based on your credit score, debt-to-income ratio, and existing debt payments. You typically need to have a good credit score to qualify for favourable interest rates. Additionally, mortgage refinancing requires you to have sufficient home equity in your property.
In case you don’t meet your bank's lending criteria, you can try inquiring with other banks and financial institutions if they offer similar services.
A word of caution: Payday loans and other ‘quick cash’ lenders might seem like a good option, but they come with significant risks. These lenders often charge much higher interest rates and in some cases, might even engage in predatory lending tactics. We highly recommend exploring all options with your bank or with Parachute first before looking at alternatives.
Regardless of the option you choose, always review the terms and conditions before signing any agreement. Pay close attention to fees and penalties associated with the product or service and factor that into the overall cost.
Conclusion
When dealing with debt, understanding your bank's offerings and discussing your financial situation with advisors can help you choose the right path forward.
Banks understand financial difficulties happen and they're often willing to help customers who are proactive. The sooner you communicate with your bank, the sooner you can explore solutions.
