# Debt Consolidation Loan



## glasshouses677 (Jul 15, 2019)

Hi Everyone. I am new here. I just wanted to get some input on my current financial situation. 
My husband and I have incurred some debt. We have about $50,000 in credit card debt. This was from using credit during some rough patches. We have a mortgage as well and have about $105,000 equity in our house that is valued at $456,000. No vehicle payments, we own both of our vehicles. We have no delinquent accounts or late payments on our credit history - I have always made more than the minimum required payments. Our household income last year on our T4 was $152,000. This year it is projected to be $180,000 as my wage went up. We just want to get ahead of ourselves and get this credit card debt cleared up. My husband has a credit score of 682, and mine is sitting at 629. I do believe it is our high credit card balances pulling this down. We have all of our products through RBC. We called them on Saturday and asked for a $50,000 consolidation loan, was told at the beginning it could take up to 5 business days to receive an answer as to approval. Spent 2 hours on the phone with the rep doing the application. I told him we wanted all accounts closed, with the exception of 1 credit card for each of us, and we are more than willing to take those limits way down. He told us that we have excellent payment history and relationship with the bank, and that we are doing a good thing by consolidating this and getting ahead of ourselves. He also complimented us by saying that we are managing our debt well. He went through insurance options and even told me what the payments would be. We can comfortably afford these payments and plan to double them to pay it down in half the time. So I guess my question would be - how likely is it that we will be approved? I am hoping that I hear back before 5 business days.

Thanks guys 🙂


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## fireseeker (Jul 24, 2017)

glasshouses677 said:


> He went through insurance options and even told me what the payments would be.


I couldn't begin to guess at what reply you might get.
However, the mention of insurance is a red flag. What is the insurance, why do you need it and why would you buy it from RBC?
Your income increase should net you between $15,000 and $20,000 a year after tax. If you apply all of this to the debt it will be paid in three years, even without further economizing. 
It sounds like you're starting to take the right steps. Good luck.


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## glasshouses677 (Jul 15, 2019)

fireseeker said:


> I couldn't begin to guess at what reply you might get.
> However, the mention of insurance is a red flag. What is the insurance, why do you need it and why would you buy it from RBC?
> Your income increase should net you between $15,000 and $20,000 a year after tax. If you apply all of this to the debt it will be paid in three years, even without further economizing.
> It sounds like you're starting to take the right steps. Good luck.


The insurance is life and disability for the loan. The way he was talking, it made it sound like it was a done deal already. 

I guess I was just looking to see if anyone else had any experiences with something like this before. I am hoping I’m not totally out to lunch hoping that they’ll approve me.


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## cainvest (May 1, 2013)

fireseeker said:


> However, the mention of insurance is a red flag. What is the insurance, why do you need it and why would you buy it from RBC?


Yup, this sounds like a cash grab from RBC. Call them and ask what the monthly insurance costs you.


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## glasshouses677 (Jul 15, 2019)

fireseeker said:


> I couldn't begin to guess at what reply you might get.
> However, the mention of insurance is a red flag. What is the insurance, why do you need it and why would you buy it from RBC?
> Your income increase should net you between $15,000 and $20,000 a year after tax. If you apply all of this to the debt it will be paid in three years, even without further economizing.
> It sounds like you're starting to take the right steps. Good luck.





cainvest said:


> Yup, this sounds like a cash grab from RBC. Call them and ask what the monthly insurance costs you.


I already did. He said it was optional and I said yes, as we have had it on previous loans. It’s $20 a month. It just covers the loan in the case of death or disability.


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## sags (May 15, 2010)

The bank will likely not approve a loan consolidation without some security on the loan. They may offer a secured home line of credit.

Added......your credit scores are fairly low and I suspect it isn't because of the amount of debt itself, but the amount of debt compared to the credit limits.

Credit usage......credit available.......same thing, that is a major component of credit scores.

If you are approved and pay off the debts, your credit scores should rise dramatically within months.


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## glasshouses677 (Jul 15, 2019)

sags said:


> The bank will likely not approve a loan consolidation without some security on the loan. They may offer a secured home line of credit.
> 
> Added......your credit scores are fairly low and I suspect it isn't because of the amount of debt itself, but the amount of debt compared to the credit limits.
> 
> ...


Yes, that would be why, for sure. 

I wouldn’t be paying the loans off - the bank will be doing that and closing all of our credit accounts with the exception of the RBC credit cards, which the limit will be taken down. Which is perfect. 
Our total debt ratio is under 40% and we have a great history with the bank. 

If we are approved, we would have no credit card debt, but instead a $50,000. That should bring our scores up? 

Here’s to hoping for approval.


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## sags (May 15, 2010)

I hope you are approved for the loan, but if not consider a HELOC or remortgage to pay off the debt. (Personally I would consider that as my first option)

Your credit score should jump well into the high 700s scores in a few months, if it involved home equity.

A consolidated loan is considered an unsecure loan and would raise your credit score but not as much as the other options which basically eliminate all unsecured debt.

The goal is to lower your debt ratio and increase your credit available.


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## AltaRed (Jun 8, 2009)

I doubt a HELOC is possible given 80% LTV limits though second mortgage might be possible. May not be cheaper than an unsecured loan though.

I do agree with the suggestion to throw every penny of the net increase in the wage hike against the debt. 

I'd forego the optional insurance. Would likely be cheaper for each spouse to increase their term life at work if they really feel they need it. If they don't have it now with CC debt, why would they need it with a consolidation loan?

Added: I agree credit scores are primarily affected by utilization percentage. They will jump as soon as significant portion of the debt is paid off.


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## glasshouses677 (Jul 15, 2019)

AltaRed said:


> I doubt a HELOC is possible given 80% LTV limits though second mortgage might be possible. May not be cheaper than an unsecured loan though.
> 
> I do agree with the suggestion to throw every penny of the net increase in the wage hike against the debt.
> 
> ...


You are correct, we do not qualify for a high enough loan with a home equity loan as we don’t have enough equity in our home just yet.

We will be throwing every penny towards this debt. I have done a budget up based on this loans approval - I can comfortably have the entire loan paid in 2.5 years. 

Good point about the insurance.


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## AltaRed (Jun 8, 2009)

I'd thus go with the lowest interest rate you can muscle out of RBC, maybe test it against another bank you do business with. 

This article may have something you have not thought of https://www.mymoneycoach.ca/debt-relief/debt-consolidation/debt-consolidation-loan-options


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## Butter (Nov 26, 2017)

The lower the rate the better, try other places also... maybe ask how long Royal Bank will let you shop around for. If you get around 11% that is okay!

Also if you say you can eat rice and beans and tackle it in 2.5 years, that's good too!

Good luck with everything.

Don't get the insurance.


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## OptsyEagle (Nov 29, 2009)

You seem to want to put yourself on the right track. Many people get a debt consolidation loan and all that happens once they pay off the credit cards is they rack them back up again and then owe both the max on the credit cards AND the consolidation loan. You seem to have seen this problem before it happened and your intention to cancel some cards is the only way one should ever get a debt consolidation loan. Without the cancelation of credit card capacity, the debt consolidation loan will be a detriment not a benefit and therefore is almost always a bad idea. You have figured out how to make it work.

OK. Now to the only problem I see and I doubt it will be insurmountable, even if the problem comes about. You said you have all your products with RBC. I assume that means the credit cards, mortgage and now hopefully the debt consolidation loan. Plus banks accounts but those don't form part of my concern. I assume the debt consolidation loan would carry a much lower interest rate then the credit cards, so here is my concern. We like to think that different loan products carry different interest rates and that at the end of the day these different types of loans are all different. In the end, all the money came from the same vault of the same bank and is owed by the same customer. The only incentive the bank has to basically loan you money so you can repay themselves (which effectively is not really a new loan at all, just a shuffle of loan documents) is if they thought you would take your business to another bank. A good credit history with them is always good, but that is not an incentive for them to shuffle this loan deck with the end result being the same money owed by the same customer, but now at a lower interest rate. That is just bad business, in their view. It's not that they won't do it, but if they could figure out a way to decline this loan AND somehow convince you that no other bank would ever lend the money to you, they would actually be much better off. Making you happy is not their first concern. Profit is their first concern.

I just wanted to point that out to you so you are ready for it. I have no doubt another bank would be happy to have your business, so if they do try this selfish approach, I don't think you will have any problem with another lender. If it was me, I probably would not even have bothered asking RBC to lend me the money. Their conflict of interest would make me think that just about any other bank would be a better bet then the bank that I want to pay off.

Good luck. Those are my thoughts.


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## AltaRed (Jun 8, 2009)

A good observation but I have also observed in the past that sometimes sister companies are their own worst enemies competing with each other. The loan officer in the branch may not give squat about the big CC profit centre in Toronto.

I do agree it could be best to test the waters with another bank, CIBC perhaps since CIBC is desperate for growth and retail is a big part of their business. https://www.cibc.com/en/personal-banking/loans-and-lines-of-credit/loans/personal-loan.html Disclosure: I have no interest in which bank


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## glasshouses677 (Jul 15, 2019)

OptsyEagle said:


> You seem to want to put yourself on the right track. Many people get a debt consolidation loan and all that happens once they pay off the credit cards is they rack them back up again and then owe both the max on the credit cards AND the consolidation loan. You seem to have seen this problem before it happened and your intention to cancel some cards is the only way one should ever get a debt consolidation loan. Without the cancelation of credit card capacity, the debt consolidation loan will be a detriment not a benefit and therefore is almost always a bad idea. You have figured out how to make it work.
> 
> OK. Now to the only problem I see and I doubt it will be insurmountable, even if the problem comes about. You said you have all your products with RBC. I assume that means the credit cards, mortgage and now hopefully the debt consolidation loan. Plus banks accounts but those don't form part of my concern. I assume the debt consolidation loan would carry a much lower interest rate then the credit cards, so here is my concern. We like to think that different loan products carry different interest rates and that at the end of the day these different types of loans are all different. In the end, all the money came from the same vault of the same bank and is owed by the same customer. The only incentive the bank has to basically loan you money so you can repay themselves (which effectively is not really a new loan at all, just a shuffle of loan documents) is if they thought you would take your business to another bank. A good credit history with them is always good, but that is not an incentive for them to shuffle this loan deck with the end result being the same money owed by the same customer, but now at a lower interest rate. That is just bad business, in their view. It's not that they won't do it, but if they could figure out a way to decline this loan AND somehow convince you that no other bank would ever lend the money to you, they would actually be much better off. Making you happy is not their first concern. Profit is their first concern.
> 
> ...



Thanks for the thoughtful reply. I appreciate that you took the time to type that all out.

Sorry, I should clarify, all of the credit card products are NOT with RBC. I just meant that we have all of our other things with them (RRSP, RESP, mortgage, etc.) The credit debt for RBC is $19,000 of the $47,000 that we currently owe.


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## OptsyEagle (Nov 29, 2009)

glasshouses677 said:


> Thanks for the thoughtful reply. I appreciate that you took the time to type that all out.
> 
> Sorry, I should clarify, all of the credit card products are NOT with RBC. I just meant that we have all of our other things with them (RRSP, RESP, mortgage, etc.) The credit debt for RBC is $19,000 of the $47,000 that we currently owe.


That is a lot of extra business for RBC. You should be OK then.


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## Longtimeago (Aug 8, 2018)

There are justifiable reasons why someone would get into $50k of credit card debt. There are also plenty of reasons why people get into unjustifiable credit card debt. You are indicating that there was justifiable reasons for your doing so. I have no reason to disbelieve you but I do see a red flag when you suggest you are concerned about raising your credit score.

I can understand you hoping your current credit score won't result in the bank denying you a consolidation loan. I can't understand why you would care about your credit score AFTER you get the loan and start working on paying off the $50k. The only reason to care about a credit score AFTER you get the loan you want, is to be able to get other loans etc. That's the red flag.

So why are you concerned about your credit score AFTER you get the loan?


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## glasshouses677 (Jul 15, 2019)

Longtimeago said:


> There are justifiable reasons why someone would get into $50k of credit card debt. There are also plenty of reasons why people get into unjustifiable credit card debt. You are indicating that there was justifiable reasons for your doing so. I have no reason to disbelieve you but I do see a red flag when you suggest you are concerned about raising your credit score.
> 
> I can understand you hoping your current credit score won't result in the bank denying you a consolidation loan. I can't understand why you would care about your credit score AFTER you get the loan and start working on paying off the $50k. The only reason to care about a credit score AFTER you get the loan you want, is to be able to get other loans etc. That's the red flag.
> 
> So why are you concerned about your credit score AFTER you get the loan?


We do not want any other loans. I just would like our credit history and credit score to be decent in the future should we require a vehicle loan in the far future. No plans for that because I just finished paying my SUV off and I want to enjoy that for as long as I can lol


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## AltaRed (Jun 8, 2009)

I am not sure how credit agencies factor in personal loans in their credit scoring, but % utilization of 'credit limit' is a key factor in credit score. You may see a small rise in credit score swapping out CC debt for personal loan debt, but regardless, as you work down the debt balance, credit scores will improve.

P.S. If you have the discipline not to undertake new CC debt, I wouldn't reduce the credit limit on the remaining cards you plan to have for the specific reason above. Percent utilization of credit limit is more important factor than the absolute debt limit itself. Besides, if you ever found yourself stranded overseas, or in medical crisis overseas, you will want to have a hefty limit on your credit card to pay for that emergency hospitalization or medivac home, etc. I have one CC with a high limit that I essentially reserve for that purpose. I have one small recurring bill (my Telus bill) that is paid monthly out of that credit card just to keep it active.


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## glasshouses677 (Jul 15, 2019)

AltaRed said:


> I am not sure how credit agencies factor in personal loans in their credit scoring, but % utilization of 'credit limit' is a key factor in credit score. You may see a small rise in credit score swapping out CC debt for personal loan debt, but regardless, as you work down the debt balance, credit scores will improve.
> 
> P.S. If you have the discipline not to undertake new CC debt, I wouldn't reduce the credit limit on the remaining cards you plan to have for the specific reason above. Percent utilization of credit limit is more important factor than the absolute debt limit itself. Besides, if you ever found yourself stranded overseas, or in medical crisis overseas, you will want to have a hefty limit on your credit card to pay for that emergency hospitalization or medivac home, etc. I have one CC with a high limit that I essentially reserve for that purpose. I have one small recurring bill (my Telus bill) that is paid monthly out of that credit card just to keep it active.


Honestly, I just want the limits reduced for now. We don’t have any plans to travel as we have young children. I’d rather throw as much money as I can on this loan (if we are approved) and then once that is paid off, I will look into raising my limits again to help my credit score. I’d like to start living off a cash budget as much as possible as well and will only use my credit card for things that require a credit card, if that makes sense. I just wanna be done with all of this, and never owe a balance on any cards again. 

Thank you all for your great advice and not judging me. It’s very appreciated.


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## AltaRed (Jun 8, 2009)

FWIW, as a general aside, too many people fuss about credit scores. Once they are in the 760 range (excellent), numbers above that don't do anything for anyone...but some people still have paranoia about it. My credit score goes below 800 for one month if I put a $35k charge on one of my credit cards for a special adventure, house reno, etc. Then it bounces back up once the monthly bill is paid. 

Now that some FIs, especially credit card companies, provide free credit scores from their online portals, some people are going to obsess even more about bouncing scores. That said, these new recent services are a plus in that it is good to monitor one's credit file regularly for identity theft issues, e.g. presence of new hard inquiries or the presence of another credit account.


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## sags (May 15, 2010)

I agree totally with AltaRed. Crediit utilization........existing debt to available credit ratio is vitally important in the calculation of credit scores.

Example.......A person has 2 credit cards with $1000 credit limits each. They owe $900 on each credit card for a total debt of $1800. Their credit usage ratio is 90%.

The same person could have the same credit cards with a $2000 limit each and owe the same $1800. Their credit usage ratio would drop to 45%.

Just something to think about before listening to people telling you to cancel all credit cards you don't use.


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## sags (May 15, 2010)

I also agree with this from AltaRed.......

_That said, these new recent services are a plus in that it is good to monitor one's credit file regularly for identity theft issues, e.g. presence of new hard inquiries or the presence of another credit account._

Lots of people say shop around, shop around.....sure, but every financial institution will make a hard credit check and too many will lower credit scores.


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## ian (Jun 18, 2016)

Never assume that your bank, or the bank that you have dealt with for years, will give you the best rate. It just is not so.

Borrowing money is just like renting a ladder. Shop for the best all around deal. Always separate insurance from the loan cost. Shop, shop, shop. What you need to hit on is a branch with a lending officer that is under on their loan portfolio. Be open to moving all of your business to the branch. My sister dealt with RBC for years then needed a car loan. She went in and asked for their best rate. THey gave her the 'preferred' customer rate. She went down the block to Vancity and got the loan for 2 1/4 points less. I suspect that the 'preferred' customer rate is more like the 'what will the traffic bear rate". 

And even when you get a good rate from the loans officer do not jump at it. Take you time, maybe tell him or her you are still shopping. In our experience you will get an extra 1/4 or 1/2 point just by doing this. Sure, the loans officer knows that he needs to make a show of calling downtown or speaking with his manager. But if this is indicated, then for certain you will get another discount. Don't let bank feel like they are doing you a favour. They are not. The loans officer (and his/her manager) you are dealing with is in all likelihood goaled and even bonused on the size of his/her loan portfolio, the growth, and the profitability. A 1/4 or a 1/2 point less is better than a missed loan deal.

We have never purchased bank life insurance, credit card insurance, etc. Any time that we have looked at it was was considerably overpriced. Far better to go to the market and shop for term insurance, etc.


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## glasshouses677 (Jul 15, 2019)

Thanks everyone.

So, the general consensus is that we should be ok to be approved by a lender? I’m not totally off base in applying for this? I know I can definitely manage the payments, but I just wasn’t sure if I would be a risk that the bank would take.


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## AltaRed (Jun 8, 2009)

glasshouses677 said:


> Thanks everyone.
> 
> So, the general consensus is that we should be ok to be approved by a lender? I’m not totally off base in applying for this? I know I can definitely manage the payments, but I just wasn’t sure if I would be a risk that the bank would take.


I don't see why the bank (or a bank if not RBC) wouldn't approve a loan to wipe out CC debt). Income levels are high enough, mortgage servicing isn't outrageous, and you have said there are no other debt payments. Getting 10-11% interest on a personal loan is much better than 20+% on credit card debt (about $4-5k more in interest payments per year). Worst case is having to spend another year paying down CC debt, perhaps as much as $10k worth, and then try for a personal loan again. Credit score will improve each month or two over the next year as percent utilization goes down (assuming you keep all your current credit card credit limits as is).


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## sags (May 15, 2010)

I hope you get the loan but if by chance you should be declined by the bank, don't despair.

There are other options you could explore, such as a second mortgage from an alternative lender, by providing equity in your home as security.

Interest rates would likely be higher than a consolidation loan from a bank, but it would have advantages that you seek.

The credit card debt would be replaced by a personal loan. Your credit score would increase.

You would have fixed payments that reduce the debt, and you can't re-borrow from the loan. You could build some savings and then focus on paying off the second mortgage.

The caveat would be..........don't get into credit card debt as well as a loan.

Another option is to sell your home, pay off the credit card debt, and buy another home debt free. It is a more radical solution but may work for you.


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## glasshouses677 (Jul 15, 2019)

So, update. 
I called the bank today as I haven’t heard anything from them. He said they’re still working on the application, but it all looks good and should be finalized on Tuesday. 
Hopefully if it was declined, we would know already. I guess we shall see!


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## glasshouses677 (Jul 15, 2019)

Thank you guys all for your advice. We were approved for the loan.


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