Debt consolidation in Canada
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Consolidating your debt for financial stability
If managing multiple debts has become stressful and overwhelming, a debt consolidation plan might be the option for you.
Debt consolidation allows you to combine your debts into a single, new loan, often with lower interest rates. If you want to learn more about obtaining a debt service plan like this, one of our Canadian debt consolidation professionals can talk you through the process.
How does consolidating debt work?
Debt consolidation simplifies your debt management by merging all your debts into one. You typically get a debt consolidation loan from a bank or lender to settle your existing debts, then repay that single loan in monthly instalments.
Depending on your situation, debt consolidation can be a strategic move to manage multiple debts simultaneously. If you can keep up with regular repayments this option can serve as a practical approach to improving your financial circumstances.
Are debt consolidation loans worth it?
There are many benefits to taking out a debt consolidation loan. These include:
- It is possible to get a lower overall interest rate, this can reduce your monthly payments and total interest, making it possible to pay off your debt sooner
- It reduces stress by simplifying your debt management
- You can keep your credit cards
- Your credit rating isn’t affected unless you are turned down for the loan
- You can use your assets (e.g. your home) to reduce your interest rates further by offering them as collateral
If you are considering debt consolidation, it is important to have the full picture. These are some of the potential disadvantages to consolidating your debt:
- If you have a longer payment plan, you could end up paying more interest in the long run because consolidation loans have an interest rate.
- Having access to your credit cards could cause further debt, so you’d need to closely manage your spending.
- You must remember to make your repayments on time, or you could use your collateral on a secured loan.
- If you are unable to make your repayments, you could damage your credit rating or the credit rating of a co-signer.
- Qualifying for a consolidation loan can often be very difficult.
- Consolidation is not debt relief, it is simply a new plan to pay off your debts.
Every form of debt relief comes with its own advantages and disadvantages, so it’s important to do your research and pick the right solution for you. A consumer proposal, for example, will remove some of your debt and allow you to pay less in total. However, if you have a variable interest rate or if it increases when you renew, your debt may become difficult to handle.
We understand that this is a lot of information to take in. If you’re not sure which route is best for you, get in touch with our friendly team of Licensed Insolvency Trustees – they will be on hand to talk you through your options.
Our Debt Management Solutions
What debts do consolidation loans help with?
Debt consolidation provides a streamlined way to manage and pay off your debt more efficiently. Consolidating your debt could be a suitable strategy if you:
- Have outstanding balances on credit cards, including those from retail stores
- Carry high-interest consumer debts, like car loans from finance firms
- Juggle various payments with differing due dates, such as insurance, child support, or student loans
Who is eligible for a debt consolidation loan?
To be eligible for a debt consolidation loan, you should:
- Have a steady income
- Maintain manageable monthly expenses
- Have an acceptable credit score
Loan underwriters will examine your payment history and credit score to evaluate your default risk. Providing collateral or a co-signer could increase your chances of loan approval. However, keep in mind, finding a co-signer can be difficult as it exposes their credit to potential risk too.
How does a consumer proposal consolidate debt?
A consumer proposal is an arrangement where you agree with your creditors on a reduced percentage of debt you owe and extend the repayment period, with no interest or penalties.
The benefits of consumer proposals in Canada make it an appealing form of debt consolidation. These include:
- Avoiding bankruptcy
- Lowering your total debt
- Consolidating all debts into a single monthly payment
- Retaining all your assets
- No interest, penalties or hidden fees
You can include various kinds of debt in a consumer proposal, such as tax debts, student loans, bank overdraft, payday loans, and credit cards.
For a deeper understanding of consumer proposals and their role in debt management, feel free to contact us for a FREE consultation today.
Why Harris & Partners
Our Licensed Insolvency Trustees provide a customized service that could remove up to 80% of your debt and stress, so you can breathe easier.
Our multilingual team provides support in many languages, from Farsi and Portuguese to Italian and Tamil, leaving out complicated jargon, so you understand everything, every step of the way.
Want to speak to someone in person? Our team is on hand to help at a Harris & Partners office near you.
Debt consolidation FAQs
Does debt consolidation affect credit score?
Debt consolidation can affect your credit score in both positive and negative ways. In the short term, it may lower your credit score because it will result in a hard inquiry on your credit report, especially if you are turned down for the loan.
However, if you make all of your payments on time, your credit score should rebound over time. In the long term, debt consolidation can actually help improve your credit score by lowering your overall debt-to-credit ratio and giving you a single monthly payment to track.
How do I get a debt consolidation loan?
To get a debt consolidation loan, you will need to apply with a lender. You can apply online or in person. The lender will review your credit score and income to determine if you qualify for a loan. Once you are approved, you will receive a lump sum of money that you can use to pay off your debts. A Licensed Insolvency Trustee cannot assist in obtaining a debt consolidation loan, but offers alternative debt solutions that may be right for you.
What is an unsecured debt consolidation loan?
An unsecured debt consolidation loan is a loan that does not require collateral. This means that the lender does not have any assets that they can seize if you default on the loan. Unsecured debt consolidation loans typically have higher interest rates than secured loans, but they are easier to qualify for.
Can debt consolidation help with payday loans?
Yes, debt consolidation can help with payday loans. Payday loans are short-term, high-interest loans that can be difficult to repay. Debt consolidation can help you to consolidate your payday loans into a single loan with a lower interest rate. This can make it easier to repay your debt and avoid the high fees associated with payday loans.
Can I still use my credit card after debt consolidation?
Yes, you can still use your credit card after obtaining a debt consolidation loan. However, it is important to use your credit card responsibly. If you start to accumulate debt on your credit card again, you could undo the benefits of debt consolidation.
Does debt consolidation affect buying a car?
Yes, debt consolidation can affect your ability to buy a car. When you apply for a car loan, the lender will consider your debt-to-credit ratio. A higher debt-to-credit ratio can make it more difficult to qualify for a loan. If you have recently consolidated your debt, it may take some time for your credit score to improve.
Does debt consolidation affect buying a home?
Debt consolidation can affect your ability to buy a home by increasing your debt-to-income ratio. This is because a debt consolidation loan will typically add to your overall debt load, even if it lowers your interest rates. As a result, it may take some time for your credit score to improve after you consolidate your debt. Buying a home can also add extra financial stress, so we would advise you to wait until your debt is manageable before buying a home.
Are you struggling with debt?
Harris & Partners Inc. Licensed Insolvency Trustees can help you achieve financial freedom. Our team of experts will work with you to understand your situation and develop a personalised debt solution.
A Licensed Insolvency Trustee does not offer debt consolidation/informal debt settlement. A Trustee has alternative options.
It's never too late to obtain debt help. Book your free consultation today
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