How Debt Consolidation Can Help You Rebuild Credit

Fairstone
Author:
Fairstone
Fairstone
Expert Contributor at Loans Canada
Caitlin
Reviewed By:
Caitlin
Caitlin Wood, BA
Editor-in-Chief at Loans Canada
Caitlin Wood has more than a decade of experience helping Canadian consumers learn how to take control of their finances. Expertise:
  • Personal finance
  • Consumer borrowing
  • Credit improvement
  • Debt management
📅
Updated On: July 20, 2020
iCash

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British Columbia Residents: iCash offers payday loans in British Columbia (license number: 67639)

Ontario Residents: Loan amounts and repayment terms are subject to qualification requirements. The maximum allowable cost of borrowing under the payday loan agreement is $14 for every $100 advanced. On a $500 loan of 14 days, the total cost of borrowing is $70, with a total payback amount of $570 and an APR of 365%. On a loan of 62 days, the APR is 82.42%.

Manitoba Residents: To learn more about your rights as a payday loan borrower, contact the Consumer Protection Office at 1-204-945-3800 or 1-800-782-0067 or at www.manitoba.ca/cca/cpo

Nova Scotia Residents: Payday loans are High Cost Loans. The maximum allowable cost of borrowing under the payday loan agreement is 14$ per every 100$ received, which means on a 100$ loan for 14 days, the total cost of borrowing is 14$, with total payback amount of 114$ and an APR of 365.00%.

PEI Residents: Loan amounts and repayment terms are subject to qualification requirements. The maximum allowable cost of borrowing under the payday loan agreement is $14 for every $100 advanced. On a $300 loan of 14 days, the total cost of borrowing is $42, with a total payback amount of $342 and an APR of 365.00%. On a loan of 62 days, the APR is 82.42%.

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For this blog, we’ve teamed up with our partners at Fairstone.

The main benefits of a debt consolidation loan? It makes debt repayment easier and helps pay down debt faster. But, a debt consolidation loan can also help rebuild your credit over time. 

Our partners at Fairstone explain how a debt consolidation loan can improve your credit score: 

Paying off credit card balances can help lower your credit utilization and improve your credit score

Credit utilization is the amount of credit you’re using versus the amount of credit you have available. Generally, if you use more than 25% of the available credit on your credit cards it will impact your credit score, giving you a lower credit score rating. By using a debt consolidation loan to pay off credit card balances, you’ll lower your credit utilization which can help improve your credit score. 

A simple and manageable payment schedule makes it easier to stay on top of payments

A debt consolidation loan allows you to combine multiple bills into one simple monthly payment. Plus, your lender can work with you to ensure your loan payment is manageable and fits in your budget. A simplified payments schedule makes it easier to manage loan payments and make payments on time. Making regular, on-time payments will improve your credit score over time. 

You can improve your debt to income ratio 

Debt to income ratio is the amount of debt payments you owe each month compared to how much income you’re earning. Since a debt consolidation loan provides a manageable payment schedule, you can focus on paying down your debt faster. The faster you pay down debt, the sooner you’ll improve your debt to income ratio. To access the best interest rates from lenders, aim to keep your debt to income ratio under 36%. 

A structured payment plan will help you establish credit-building habits in the future 

Credit cards and lines of credit are revolving debt, meaning there is no set payment period for the debt to be paid off. You’re only required to make the monthly minimum payment. Unfortunately, it’s difficult to pay down debt quickly by only making minimum payments. 

Debt consolidation loans, or installment loans, offer a structured payment plan where the debt will be paid off at the end of the term (the number of months it takes to pay off the loan). 

Tip: Choose a biweekly payment schedule for your consolidation loan – you can pay off your loan quickly and establish a routine for making regular debt payments. 

Trying to get out of debt and improve your credit score at the same time can be overwhelming. But with a little hard work, and the right type of debt consolidation loan, you’ll be debt-free and have good credit sooner than you think! 

Interested in a debt consolidation loan? Fairstone can help! 

Find out if a Fairstone debt consolidation loan is right for you. You can get a free loan quote at Fairstone.ca to see how much money you could qualify for and what your payments might be. Plus, homeowners can access Fairstone’s lowest rates by securing their debt consolidation loan with the value of their house. 

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Fairstone

Fairstone Financial is a leading alternative lender in Canada, they have been helping Canadians since 1923. Their mission is to provide Canadians, with fair to good credit, with an affordable alternative to payday loans.

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