How To Consolidate Debt In Alberta
Consolidating your debt means condensing it into one payment, ideally with a lower interest rate. The idea is to streamline debt management, while potentially saving you money.
There are 3 common ways to consolidate debt in Alberta:
- Debt Consolidation Loan
- Debt Management Plan (DMP)
- Balance Transfer
1. Debt Consolidation Loans
A handful of loan types are available that you can use to consolidate your debt:
- Personal Loans: You can use the funds from a personal loan to pay off all your existing debt, leaving you with one monthly payment to pay down your personal loan. These loans may be secured or unsecured, and the funds are repaid via regular installment payments that include both principal and interest.
- Home Equity Loans: If you’re a homeowner, you can access the equity you’ve built up and use the money to consolidate your debt. Home equity loans work similar to a regular loan, in that you’ll be given a lump sum of money that you’ll repay via installment payments. Since the loan is secured against your home, you may qualify for lower rates.
- HELOCs: A home equity line of credit also lets you access your home’s equity, which you can use for a variety of purposes, including debt consolidation. This revolving credit line allows you to withdraw as much or as little from your account, up to a specific credit limit. You’re only charged interest on what you withdraw, and once you repay the funds, you can withdraw again and again as needed.
| Can Debt Consolidation Hurt My Credit Score? If you take out a loan to consolidate your debt, your score may dip temporarily due to a hard credit inquiry. However, over the long run, your credit score may improve as a result of timely payments on your debt consolidation loan. |
Can I Get A Debt Consolidation Loan If I Have Bad Credit?
Personal loans typically require good credit to qualify. That said, loans secured against your home, such as home equity loans and HELOCs, may be accessible if you have bad credit, as your collateral reduces the lender’s risk.
Bad credit debt consolidation loans may also be available from alternative lenders, who tend to offer more flexible loan criteria and lower credit score requirements.
Best Loans For Debt Consolidation
How Much Can Debt Consolidation Save You?
Debt consolidation can save you quite a bit of money, but the exact amount you may save depends on several key factors, including the following:
- Interest Rates: The lower the rate, the less your loan will cost you overall.
- Loan Term: Extending your loan term may lower your monthly payments, but may cost you more in interest over the life of the loan.
- Fees: Lender fees that are charged on your loan, such as origination fees, can influence your overall savings.
Let’s illustrate how much you could potentially save by consolidating your debt using the following example:
| Debt Type | Balance | Interest Rate | Total Interest Over 5 Years |
| Credit Card 1 | $7,500 | 20.99% | $4,671 |
| Credit Card 2 | $4,000 | 22.99% | $2,764 |
| Personal Loan | $10,000 | 9% | $2,455 |
| Total | $21,500 | $9,890 |
In this example, you’re paying $9,890 in interest over 5 years if you keep your existing debt as is. Now, let’s see how much you could potentially save in interest over the same term length by consolidating your debt with an overall interest rate of 9.99%:
Loan Amount: $21,000
Interest Rate: 9.99%
Loan Term: 5 years
Total Interest: $5,765
By consolidating your debt, in this example, you would save $4,125 in interest over the term of the loan ($9,890 – $5,765).
2. Balance Transfers
If you have high credit card debt, you may consider applying for a balance transfer credit card with a low- or zero-rate promotional period. During this introductory period, you’ll have the opportunity to pay down your credit card balance without incurring additional debt, helping you save money while paying down your debt faster.
Learn more: Best Balance Transfer Credit Card In Canada
How Does It Work?
With a credit card balance transfer, you’ll take out a balance transfer card, often with a 0% introductory rate for a specified period, usually a few months. Then, you’ll transfer your credit card debt from other cards. The new credit card issuer pays off these balances, while you repay the transferred amount at the promotional rate.
| Warning: If you don’t pay off your balance within the promotional period, the regular credit card rate will kick in and be charged on the outstanding balance. This can result in increased debt and higher payments. Further, there are balance transfer fees to factor in. These fees are usually between 3% to 5% of the transferred amount, which is charged when you transfer your balance to the new card. Be sure to crunch the numbers to see if your potential savings outweigh these fees. |
3. Debt Management Program
A Debt Management Program (DMP) involves consolidating debt payments into a single monthly payment, which you make to a credit counselling agency which oversees the plan. The credit counsellor then distributes the funds to your creditors.
A DMP may involve lower interest rates, waived fees, or both. The goal is to simplify debt repayment.
Types Of Debts That May Be Included In A DMP
Generally, DMPs include unsecured debts, such as the following:
- Unsecured personal loans
- Credit card debt
- Utility bills
- Collections accounts
- Medical bills
| Are Secured Debts Included In A DMP? Generally, no, secured debts cannot be included in a DMP. These include car loans, mortgages, home equity loans, and HELOCs. |
Should You Consider a DMP?
A DMP may negatively affect your credit score, though the effect is usually not as severe as other debt relief solutions. But because your credit score may be affected, you should only consider a DMP if you’re unable to manage several high-interest unsecured debts on your own.
Where Can You Find A Debt Management Program In Alberta?
Many credit counselling agencies are available in Alberta to come up with a manageable DMP, such as the following:
| Agency | Services Provided | |
| Money Mentors | -Credit counselling -Debt consolidation -Orderly Payment of Debts program (OPD) | Learn More |
| BDO Debt Solutions | -Debt counselling -Consumer proposals -Bankruptcy | Learn More |
Alberta Government Financial Assistance Programs
| Financial Resource | Link |
| Alberta Family Support For Children With Disabilities (FSCD) Program | Learn More |
| Alberta Aids To Daily Living (AADL) | Learn More |
| Alberta Seniors Benefit | Learn More |
| Assured Income For The Severely Handicapped (AISH) | Learn More |
| Alberta Child And Family Benefit (ACFB) | Learn More |
| Social Assistance In Alberta | Learn More |
Alternatives Debt Relief Solutions In Alberta
Debt consolidation in Alberta may be useful if you’re still capable of managing at least some of your debt. However, if your financial struggles are particularly severe, you may consider more aggressive ways to tackle your debt:
Consumer Proposal
A consumer proposal is a legally binding agreement that allows you to negotiate lower debt payments with your creditors with the help of a Licensed Insolvency Trustee (LIT). It’s an alternative to bankruptcy and lets you keep your assets while consolidating your debt into manageable payments.
Bankruptcy
Bankruptcy is a legal process that helps you get rid of your unsecured debts when you can’t pay them down. It’s also managed by an LIT and involves surrendering non-exempt assets in exchange for protection against creditor actions.
Learn more: Bankruptcy Alberta
Debt Settlement
Debt settlement involves a negotiation process with your creditors to pay less than the total amount you owe, typically through a lump sum payment.
| Credit Score Impact: Keep in mind that all three of these debt relief options will negatively affect your credit score. Of these, bankruptcy tends to have the most severe effect. Be mindful of this fact before you opt for one of these programs to deal with your debt. |
