Debt Consolidation

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What is debt consolidation?

If you’re tired of juggling debt payments, a debt consolidation loan can take the guesswork out of paying bills on time and may make budgeting for repayment easier. With debt consolidation, all of your debts are combined into one overall loan provided by your bank or financial institution.

How debt consolidation works

If you are approved for a debt consolidation loan, the financial institution will provide you the funds to pay your creditors. You will then pay the financial institution one monthly payment, generally at a lower interest rate than your credit card debt. Keep in mind you must first qualify for this type of loan. A financial institution will sometimes require you to have a co-signer or someone to guarantee your loan, which may be your biggest obstacle in obtaining a consolidation loan.

A second mortgage is a type of debt consolidation loan. If you have equity in your home, you may be able to refinance your current mortgage or obtain a second mortgage to consolidate your debts into one monthly payment with a lower borrowing cost.

Debt consolidation pros and cons

Advantages Disadvantages
Simplifies payments by combining multiple debts into one. May take longer to pay off than original debts.
Often results in a lower interest rate on debts. You could pay more interest over time depending on the term.
Can improve credit score over time if managed responsibly. Some debt consolidation plans require collateral, like a home or car.
Reduce stress by managing just one payment. Not a solution for everyone and doesn't address spending habits.
Stop collection calls from creditors Failling to make payments can lead to further financial trouble.

Advantages

  • Simplifies payments by combining multiple debts into one.
  • Often results in a lower interest rate on debts.
  • Can improve credit score over time if managed responsibly.
  • Reduces stress by managing just one payment.
  • Stops collection calls from creditors.

Disadvantages

  • May take longer to pay off than original debts.
  • You could pay more interest over time depending on the term.
  • Some debt consolidation plans require collateral, like a home or car.
  • Not a solution for everyone and doesn’t address spending habits.
  • Failing to make payments can lead to further financial trouble.

Is debt consolidation right for me?

A debt consolidation loan may be a good choice if:

  • You have a decent credit score to obtain the loan
  • Have someone available to co-sign your loan if required
  • Your monthly budget allows you to make the monthly consolidation loan payment

If you don’t have a strong credit rating or would be unable to keep up with your consolidated loan payment, it’s time to look at other options. Speak with one of our local Licensed Insolvency Trustees to determine whether a debt consolidation loan or perhaps a consumer proposal is the answer for your debt challenges.

Debt consolidation FAQs

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Alternatives to debt consolidation

Consumer Proposal

If you’re struggling with debt but also have assets you wish to keep, a consumer proposal might be the life-changing debt solution you’re looking for.

View Consumer Proposal

Bankruptcy

Bankruptcy is a legal process that provides immediate relief from your unsecured debts, such as credit card debt, but it’s not necessarily an all-encompassing solution.

View Personal Bankruptcy

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