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Ben Plewes BA (Hons) LBIPP/Copyright Ben Plewes 2007

Three weeks before the Bank of Canada announced the end of the recession, thanks in part to expanding household credit, a report emerged showing that many can not handle their rising debt loads.

Canada's average delinquency rate for consumer credit, which doesn't include mortgages, hit 1.52 per cent in May, up 19 per cent over the prior year, according to Equifax Canada Consulting Solutions. Over half a million Canadians are more than 90 days behind on their credit payments.

The sharpest increase in delinquencies was in the area of credit card and sales finance purchases, which can be attributed to purchases of goods such as furniture and electronics, said Nadim Abdo, Vice President of Equifax Canada Consulting Solutions.

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For those getting calls from collection agencies about the new fridge they couldn't quite afford, talk of an economic recovery is pointless. Debt problems are difficult to face, but need to be addressed well before you reach the critical phase of bankruptcy. When you find yourself struggling to keep up with the minimum payments on your credit cards, it may be time to explore debt consolidation.

The Consolidated Credit Counseling Services of Canada, a not-for-profit agency, has seen an increase in applicants over the past several months. "Interest and participation in this kind of program has definitely gone up," said Galit Osadtsuk, Director of Community and Public Relations.

Like many other agencies that offer consolidation loans, Consolidated Credit helps those that qualify reduce their unsecured debt into a single interest monthly payment that is made to the agency. Ideally, you will pay a lower overall rate of interest, saving money and reducing the amount of time it takes to get debt-free. Most participants in the Consolidated Credit program get rid of their unsecured debts in 36 to 60 months.

To get a sense of how consolidating debt can help you, use a debt consolidation calculator such as the one available on this site. In order to qualify for a consolidated loan, you will need to have an acceptable credit rating and sufficient income to be able to manage the loan, in addition to paying your regular bills and expenses.

To determine if you are a candidate, a debt consolidation agency counselor will work with you on your budget, determining your total expenses and income. They will figure out the total amount of debt you owe and arrive at a figure you can pay each month toward that debt.

Working with an agency has its benefits - they often get creditors to lower or eliminate interest as well as finance charges and other penalties. By repaying all of your creditors through one monthly payment to the agency, you also reduce the stress of tracking all the money you owe.

But it's important to choose the right agency. Canada's Office of Consumer Affairs warns that some companies offering consolidation loans may charge a higher interest rate compared with mainstream financial institutions. Don't be afraid to shop around for a better rate. As with any contract, before signing a loan agreement, review the terms and conditions carefully so that you know exactly how much the loan will cost.

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You should also be wary of institutions that want to give you a secured consolidation loan, as opposed to an unsecured loan. A secured loan is when your property is put up as collateral. If you are unable to make loan payments, you may lose your home or car. While you may find a secured loan comes with a lower interest rate, it's not worth the risk it adds for you and your family.

It's important to review all of the options to manage your debt. Debt consolidation is just one approach and it's no guarantee that you won't end up in debt again. Ultimately, you need to take control of your spending habits to avoid falling back into the credit trap. Educating yourself through the debt consolidation process may help. According to Galit Osadtsuk: "After the program, we find that people live a financially stable and responsible life."

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