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How to Consolidate Your Credit Card Debt
Last Updated: May 23, 2023
Written by: Caitlin Wood

According to a recent study by TransUnion, there are currently roughly 43 million credit cards in use in Canada. Just in case you were wondering the current population of Canada is around 35 million, this means there are more credit cards in use than people in Canada. When there are that many credit cards floating around, ready to be used, debt problems are almost a given. Currently the average Canadian carries a balance of roughly $4,094 on one or more credit cards.

Credit card debt seems to have become a fixture in the lives of most adult Canadians, but fortunately, it doesn’t need to stay that way. While we’ll always be the first to say that it’s much easier to get into debt than it is to get out of debt, there are still countless options out there for anyone looking to regain control of their spending and work toward becoming debt free. Debt consolidation is one of those options.

Canadian household debt

Interested in Canadian household debt? Check out this infographic.

What is Credit Card Debt Consolidation?

Credit card debt consolidation is when you’re carrying balances on several high-interest cards and want to consolidate or combine all those balances into one easy to manage and more affordable payment. There are many ways you can consolidate your credit card debt, all of which we’ve detailed below.

Your Credit Card Debt Consolidation Options

When it comes to consolidating your credit card debt, you have several options all of which can help you regain control of your finances and get on track to a better, debt free future.

Debt Consolidation Loan

Probably the most common form of credit card debt consolidation is an unsecured personal loan (learn how to qualify here). Depending on how much credit card debt you have, you can apply for an unsecured loan to pay off the balances you carry on your credit cards. For those with either bad credit or a large amount of credit card debt, this option may not be the best choice for you. One of the most important parts of debt consolidation is getting approved for a lower interest rate so that more of your hard-earned money is going toward actually paying down your debt instead of toward interest charges.

Unfortunately, the fact of the matter is, if you want to apply for a large unsecured loan with a low-interest rate, to pay down your credit card debt, you need to have an above average credit score. Keep in mind that this is not the case for all unsecured loans. We just want to make sure that you understand that if you’re looking to apply for an unsecured loan of $30,000 or more and you have less than great credit, you will more than likely have some difficulty getting approved.

Debt Management Program (DMP)

A debt management program, on the other hand, is a good choice for those with a large amount of credit card debt they need to consolidate. The purpose of a DMP is to consolidate all your (eligible) debt, in this case, your credit card debt, into a single affordable monthly payment. A DMP is a great option for those who are interested in seeking the help of a train professional. You’ll work with a creditor counsellor who will:

  • Assess your financial situation
  • Come up with a personalized plan for you
  • Negotiate with your credit card providers to see if they can get your interest rates reduced and or eliminate any penalties you might have been charged.

You’ll make your monthly payment(s) to your credit counsellor who will then distribute the money to the appropriate credit card company based on how much you owe and the agreement you came to.

Click here for more information on what to expect when you enroll in a DMP.

Credit Card Balance Transfer

A credit card balance transfer is when you transfer the balances from all your credit cards to a new credit card with a lower interest rate. The purpose of this is to save on interest charges and pay down your debt as soon as possible. There are two issues that you need to consider if you decide that a credit card balance transfer is the best option for you.

  1. You need to make sure your new credit card has a lower interest rate than all your other credit cards. If you simply transfer your balances to a card with the same interest rate the only benefit is that you’ll only need to make one monthly payment instead of multiple.
  2. The most important issue you need to be aware of is the fees associated with balance transfers. The majority of credit cards charge a specific fee for balance transfers; typically it’s a set percentage of the balance you’re transferring.

It is possible to make this option work for you at a very low cost. There are balance transfer credit cards in Canada that offer low fees and an interest-free introductory period for new clients. This means you could potentially save a lot of money on interest if you’re able to pay down all your debts within the interest-free introductory period. Typically credit card companies offer a six-month interest-free period but keep an eye out for deals, we’ve seen some specific cards come with an interest-free period of a full year.

For a more in-depth look at credit card balance transfers, check out this article.

Home Equity Line of Credit or Loan

If you’re a homeowner, using the equity you’ve built up through paying off your mortgage, to secure a loan or line of credit, is another option you should consider. Because you’ll be putting up collateral to secure the loan, you’ll not only have a better chance of getting approved, you’ll also be able to access a larger amount of money, depending on how much equity you’ve accumulated. Interest rates are also often considerably lower than with other debt consolidation options.

When you use a home equity loan or line of credit to consolidate your credit card debt, it works in the same way that an unsecured debt consolidation loan works.

  • Pay off high-interest credit cards
  • Focus all attention and finances toward paying off one single loan, instead of multiple cards
  • Save on interest
  • Get out of debt sooner

It’s important to consider the consequences of putting your house up as collateral to pay off consumer debt. Since a home equity loan or line of credit is secured, should you default, you may be at risk of losing your home.

Should I use home equity to pay off my credit card debt? Find out here.

debt management

To help determine which debt management option is best for you, click here

Paying Off Your Debt

One thing to keep in mind when consolidating your credit card debt is that the debt still exists, debt consolidation doesn’t make your debt go away, it simply moves it around to give you the best possible chance to pay it back. This means that after you’ve taken out an unsecured loan or transferred all your balances to one card, you’ll still need to come up with the money to pay back what you owe.

Friends and Family

This may be a good time to ask for help from your friends or family members if you’re having trouble coming up with the money you need to contribute to your debt consolidation efforts. Obviously, borrowing money from a friend or family member means you’ll still be in debt, but if you choose someone who you have a very open, honest, and trustworthy relationship with, you might be able to come up with a deal that could greatly reduce the stress your debt is putting on your finances.

Check out this article to learn how paying down debt can positively affect your life. 

Selling off Assets

Another great way to offset some of the cost associated with consolidating and then paying down your credit card debt is to sell off assets. This, of course, can be anything of value that you owe but don’t really need or use. Just make sure you don’t sell anything that you actually need and or want as you’ll just be tempted to repurchase the item once you’ve paid off your debts and this could restart the cycle of poor spending habits that got you into debt in the first place.


By effectively downsizing your lifestyle you can free up, even more, money to put toward paying down your credit card debt after you’ve consolidated it. Downsizing can be anything from eating out less to selling your house and purchasing a less expensive one. Obviously, this completely depends on your lifestyle and how much debt you have to pay off. We don’t recommend that everyone with credit card debt go out and sell their homes. But, if you have a significant amount of debt that needs to be dealt with and selling you house would not only help out with that but make your entire life for manageable, it could be a good option for you.

Why Would Someone Want to Consolidate Their Credit Card Debt?

There are countless reasons why someone might have racked up an unmanageable amount of credit card debt, from irresponsible spending to unexpected expenses. When life happens, sometimes we need to turn to the easiest and most convenient form of borrowing money, our credit cards. Debt consolidation is one of the best options for those who have overused their credit cards, regardless of the reason. Here are some of the most common reasons why someone might want to consolidate their credit card debt.

  • To simplify their finances by reducing the number of monthly payments they need to keep track of
  • To get a lower interest rate and save money
  • Because they can no longer afford to carry the debt anymore
  • As an alternative to more drastic options like consumer proposal or bankruptcy
  • To get out of debt quicker

Will A debt consolidation loan look bad on your credit report? Click here for the answer.

Credit Card Debt Consolidation and Your Credit Score

The effect that debt consolidation has on your credit score depends on which option you go with. Generally speaking, paying down debt is always a good thing and eventually, you’ll be rewarded with an improved credit score. But, it’s important to keep in mind that some credit card debt consolidation options will negatively affect your credit score, most notably a debt management program (DMP).

A DMP will remain on your credit report for 3 years following the repayment of your debts in full. Each of the accounts that were part of your DMP will be given a rating of R7 (for more information on what this means, check out this article). Both of these could potentially impair your ability to get approved for loans and other financial products in the future.

The Positive Effect of Credit Card Debt Consolidation

If you choose to go with a debt consolidation loan or a credit card balance transfer to manage your debt, your credit score will start to improve, not necessarily right away, but with time. The best part is it won’t take a huge plunge first. Obviously, this all depends on how much debt you need to deal with and what you feel is the best option for your current financial situation.

Credit utilization

When credit improvement is discussed, often a great emphasis is placed on history of payment. While it is of course always a good idea to make your payments on time, there is another factor what affects the health of your credit score just as much, yet we rarely hear about it. Its credit utilization, how much credit you use compared to how much you have available to you. If you have $20, 000 worth of credit available on your credit cards and you constantly use up almost all of that available credit, your credit score will not benefit from this.

When you consolidate your credit card debt and start to pay it off, your credit utilization ratio will go down and therefore your credit score will go up.

Being Debt Free vs. Your Credit Score

When it’s all said and done, being debt free is one of, if not the best thing you can do for yourself and your future. If you are currently carrying a lot of credit card debt and want to pay it down once and for all but are afraid of how that will affect your credit score, answer this question. Is a high credit score really more important than being debt free?

Interested in more on this topic? Check out this article.

Credit Card Debt Consolidation Tips

Choosing the right credit card debt consolidation option and then going through the process can seem like a daunting task and we understand why. Debt is not fun. To help ease your nerves and help you make an informed decisions, here are our top credit card debt consolidation tips.

  • Choose a fixed payment plan so you’ll know exactly when you’ll be debt-free.
  • Only choose an option that you know you can afford and that won’t create additional financial issues for you in the future.
  • Consider your lifestyle, income, and financial management style.
  • Consider choosing the option that will get you debt free the quickest (this will save you money on interest charges).
  • If you go with a DMP, only work with a reputable company that you trust and feel comfortable with.

Dealing With Your Finances After Debt Consolidation

The number one issue that the majority of consumers face after they consolidate their credit card debt is creating more debt. Once you’ve gone through the trouble of consolidating your credit card debt and paying it off, it’s extremely important that you alter your spending habits so that you don’t end up in the same place again. Here are a few steps that everyone, who has just completed their debt consolidation, should take.

  • Prioritize your spending
  • Remove spending triggers
  • Learn to say no to yourself
  • Replace shopping with a more productive activity

Choosing The Best Option For You

Credit card debt consolidation is a great way to regain control of your spending and your finances, but if you don’t choose the right option for your unique needs, you may have trouble taking full advantage of the option you go with. If you’re interested in speaking with a professional or are looking for more information on debt management programs, we can help.

Caitlin Wood avatar on Loans Canada
Caitlin Wood

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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