Debt is a rampant problem for consumers across New Brunswick, especially debt that comes with high-interest rates. The more debt you have on your plate, the harder it can be to pay it all down. And the more debt you add to your books, the longer it will take you to become debt-free.
While having some debt is not necessarily a bad thing, it can completely take over your financial life. And the more loans you have that each require their own separate payment, the more difficult it can be to manage all of your debt. This is where debt consolidation can help.
How To Consolidate Debt In New Brunswick
There are a handful of ways you can consolidate your debt. Here are a few options to consider:
- Debt Consolidation Loan
- Debt Management Program (DMP)
- Balance Transfer
What Types Of Debt Can You Consolidate In New Brunswick?
Generally speaking, only unsecured debt can be consolidated in New Brunswick, including the following:
- Credit cards
- Unsecured personal loans
- Gas cards
- Non-government student loan debt
- Cell phone debt
- Utility bills
- Medical bills
Secured debt, such as mortgages, is usually not eligible for consolidation.
1. Debt Consolidation Loans
A debt consolidation loan is a type of loan that you can use to pay off all your existing debts. This effectively combines your existing debt into a single loan with one payment, ideally at a lower interest rate. The goal is to save money in interest and simplify your finances with one loan to manage.
What Types Of Loans Can You Use To Consolidate Debt?
The following are some loan types you may consider to consolidate your debt:
- Personal Loans
- Home Equity Loans
- HELOCs
| Personal Loans | -Fixed loan amount provided in one lump sum -Fixed interest rate for consistent monthly payments -Funds repaid over a set term -Funds may be used for various purposes, including debt consolidation |
| Home Equity Loans | -Secured loan that uses your home as collateral -Fixed loan amount provided in one lump sum -Generally has a fixed interest rate for consistent monthly payments -Funds repaid over a set term -Requires you to have significant equity in your home -Funds may be used for various purposes, including debt consolidation |
| HELOCs | -Secured loan that uses your home as collateral -Revolving credit that allows you to borrow up to a certain limit, repay, and borrow again -Generally has a variable interest rate, so the rate can fluctuate over time -Requires you to have significant equity in your home -Funds may be used for various purposes, including debt consolidation |
How Much Can You Save With Debt Consolidation?
The overall savings with a debt consolidation loan ultimately have to do with how much you can save in interest over the life of the loan. To help you understand how much you could potentially save, let’s illustrate using an example:
| Debt Type | Balance | Interest Rate | Total Interest Over 5 Years |
| Credit Card 1 | $5,000 | 19.99% | $2,946.50 |
| Credit Card 2 | $4,000 | 21.99% | $2,627.17 |
| Personal Loan | $3,000 | 14.99% | $1,281.24 |
| Total | $12,000 | $6,854.91 |
If you continue to pay your existing debt without consolidating, you’ll pay $6,854.91 in interest over 5 years.
Now, let’s see how much you could potentially save in interest over a 5-year term with a debt consolidation loan at a 12% rate:
- Loan Amount: $12,000 (combining all debts)
- Interest Rate: 12% (lower than all your current rates)
- Loan Term: 5 years
- Total Interest: $4,016.00
By consolidating your debt, you could save $2,838.91 in interest over 5 years ($6,854.91 – $4,016.00).
What Do I Need To Qualify For Debt Consolidation In New Brunswick?
Generally speaking, you’ll need to meet the following criteria to secure a debt consolidation loan:
- Have a good credit score (at least 660+)
- Earn a steady income
- Have a debt-to-income (DTI) ratio no higher than 44%
Meeting these criteria will not only increase your chances of approval, but it also boosts your odds of getting a better interest rate. This is key to maximizing your savings with a debt consolidation loan.
| Will Consolidating My Debt Hurt My Credit? Taking out a debt consolidation loan could hurt your credit score in a couple of ways: Hard credit check: When your lender pulls your credit report, a hard credit check will be noted, which can temporarily affect your credit score. Closed credit accounts: Closing your loans and credit accounts can affect your credit score because you’re shortening your credit history and potentially increasing your credit utilization ratio. |
2. Balance Transfers
A credit card balance transfer is a process that allows you to move the outstanding balance from one or more credit cards to another credit card, typically with a lower interest rate. Here are the main features of a credit card balance transfer:
- Lower Interest Rate: Balance transfers often come with a very low (or 0%) interest rate during the introductory period.
- Promotional Period: The low interest rate is typically only temporary, lasting from 6 to 18 months. Once this period ends, the standard rate applies.
- Debt Reduction: A lower interest rate can help you pay off your credit card debt faster, since more of your payments are going towards paying down the principal.
- Fees: There is typically a balance transfer fee you should budget for, which can be around 3% to 5% of the transfer balance.
For debt consolidation purposes, you can combine several credit card balances into one, streamlining your credit card monthly payments.
Learn more: Credit Card Balance Transfers: How to Come out Ahead
| Warning: If you don’t pay off your entire credit card balance within the promotional period, the standard rate will kick in. That means the balance remaining will be subject to a much higher rate, costing you more in interest. This option should only be considered for debt consolidation purposes if you’re able to pay off your entire balance within the low- or no-interest introductory period. |
3. Debt Management Program (DMP)
A debt management program (DMP) is a repayment plan that’s meant to help you manage and repay your outstanding debts. Here are a few features of this program:
- Credit Counselling: You work with a credit counsellor who will assess your financial situation and help you create a budget.
- Negotiation With Creditors: Your counsellor will negotiate with your creditors to potentially set up a more manageable payment plan, which may include lowering your interest rates or waiving fees.
- One Monthly Payment: You’ll make one payment per month to the credit counselling agency, which will distribute the money to your creditors accordingly.
- Set Term: The DMP typically lasts for a set term, depending on your debt amount and repayment ability.
DMPs can include unsecured debts, such as credit cards and unsecured personal loans. Secured debts, like mortgages or auto loans, are typically not included in a DMP.
Where Can You Find A Debt Management Program In New Brunswick?
Many credit counselling agencies are available in New Brunswick that can help you set up with a structured DMP, including the following:
| Agency | Services Offered | |
| Consolidated Credit | -Credit counselling -Debt management -Debt consolidation -Consumer proposal -Bankruptcy | Learn More |
| Credit Counselling Canada | -Credit counselling -Financial literacy education -Debt repayment assistance | Learn More |
| 4 Pillars | -Credit counselling -Credit rebuilding -Debt consolidation -Consumer proposals -Bankruptcy | Learn More |
| BDO Debt Solutions | -Debt counselling -Consumer proposals -Bankruptcy | Learn More |
What if You’re a New Brunswick Consumer with Bad Credit?
If you are a New Brunswick consumer with bad credit, you may still have some options when it comes to debt consolidation.
- Get a cosigner. Even if you’ve been turned down for a debt consolidation loan, you might be able to get accepted if you have a cosigner with good credit. A cosigner can be anyone with good credit who agrees to take over your loan payments if you default in the future. This means that the cosigner will be responsible to make payments until the loan is fully repaid.
| Can I Get A Debt Consolidation Loan With Bad Credit? If you have bad credit, you’ll likely need to apply for a debt consolidation loan from an alternative lender, as traditional lenders typically require good credit. Other options may also be available, such as home equity loans and HELOCs. As long as you have adequate equity in your home, you may be able to qualify even with poor credit, depending on the lender. |
Alternatives Debt Relief Solutions In New Brunswick
If your financial struggles are more significant than what a debt consolidation program can help with, there are more aggressive measures you can take, including the following:
| Debt Settlement | Debt settlement is a process where you or a debt settlement agency negotiates with the creditors to pay off your debt for less than the full amount you owe. This is typically done by offering your creditors a lump sum payment, which you make to your debt settlement company, which then uses these funds to pay your creditors. |
| Consumer Proposal | A consumer proposal is a legal process that helps you settle your unsecured debts with creditors. The process requires the help of a Licensed Insolvency Trustee (LIT) who helps you develop a proposal to pay creditors a share of what you owe or extend the time you have to repay your debts. Once filed, a consumer proposal provides legal protection from creditors and collection agencies. |
| Bankruptcy | Bankruptcy is a legal process designed to help relieve you of your unsecured debts, so you’ll no longer have to repay them. The process requires assistance from a LIT who helps you manage the process. Once you file for bankruptcy, you’ll get legal protection from creditors and collection firms. You may need to surrender your assets (with exceptions), which your LIT will use to sell them and use the proceeds to pay off your creditors. |
Keep in mind that all these debt relief options will have a negative impact on your credit score. This can affect your ability to secure credit products for a few years until these notes have been removed from your credit report. Be sure to consider this very carefully before choosing any of the above-mentioned programs.
