Why won’t my bank in Sarnia help me with my debts?

by Joel Sandwith on July 29, 2011

I can’t speak for any banks, obviously, but this is a question we get a lot.

A bankruptcy and consumer proposal firm, like us at Hoyes Michalos, is not usually the first call a person makes when they are struggling financially. Most people spend a great deal of time going over their budget, discussing things with a spouse or friend, and at some point most people call or visit their bank for advice.  Most of the time, if you are calling us, there is a good chance you’ve been turned down for a loan by your bank.

I always say to people when I meet with them that you can’t dig out of a hole by buying a shovel -I’m not a big fan of borrowing to deal with debt.  I’d prefer you find a ladder, and pull yourself out, whenever possible.

But why WON’T the bank help?  I think the overwhelming reason must be risk.  Think of it this way – if you owe $40,000 on credit cards, and pay $1,200 per month in minimum payments, that is a lot to shell out on a monthly basis.  What if the bank could lend you $40,000, on a loan, with payments of $800 per month? That would be a huge help, right?

Well, maybe not.  What if you can only afford $600 per month?  For most people, that would mean needing to use the credit cards again to pay for other expenses, increasing the debt and possibly making it hard to repay the loan payments.  And this is what the bank sees – if they lend you money, it helps you today, but may not help either of you tomorrow.   Most of the peopleI meet with have between three and ten different debts – all those banks are sharing the risk – if you don’t pay, or can’t pay, they only lose a little each.  If one of them grants you a consolidation loan, and you don’t pay it, or can’t pay it, that one bank loses the whole thing.

So, if you have tried to consolidate and been turned down, don’t dwell on it, look for an alternative.  For example, it is possible the $40,000 of debt from the example could be paid off with a consumer proposal for as little as $300 per month.  Give us a call at 866-747-0660 or locally at 519-344-1058, so that we can go over some options with you.


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