Debt Consolidation Nova Scotia

📅 Last Updated: December 7, 2023

✏️ Written By Bryan Daly

🕵️ Fact-Checked by Caitlin Wood

Table of Contents show

When multiple debts from different creditors start to drain your savings and ruining your finances, debt consolidation might be the only solution. Keep reading for everything you need to know about how debt consolidation can help you become debt free in Nova Scotia.

Looking for some debt management tips? Take a look at these.

The Difference Between Good Debt and Bad Debt

Before we take a look at the two main debt consolidation techniques in Nova Scotia, it’s a good idea to learn how to distinguish good debt from bad debt. That’s right, not all debt is harmful to your finances, it’s only harmful when you let it become unmanageable, which can be easier than you’d think at first. However, let’s discuss the two types of debt so you’ll have a better idea of how to avoid this situation.

Good Debt

Most types of debt can actually be good for your credit and finances when handled with a responsible attitude. For instance, a mortgage can be a great debt to take on in Nova Scotia, because it allows you to purchase a house without having to pay hundreds of thousands of dollars right out of the gate. The more responsible (on schedule) mortgage payments you complete, the quicker you’ll own the house. In addition, every mortgage payment gets reported to Canada’s credit bureaus by your creditor. Those good payments then elevate your credit score, making it easier for you to be approved for credit products with fair interest rates down the line.

The same effect can be had with credit cards, lines of credit, personal loans, or any other credit product. Good payments equal good credit. Responsible debt is good debt.

Bad Debt

Unfortunately, those same types of debt can also be bad for your credit and finances when handled irresponsibly. For example, the mortgage that was initially helping you afford a house can be extremely damaging if you let your payments get ahead of you and start defaulting for whatever reason. Not only does a late or missed mortgage payment harm your credit score, but the debt caused by late penalties and mounting interest also puts a heavy strain on your finances. If you default for too long, your creditor might even put your home through a foreclosure.

Click here for more information about missing mortgage payments and foreclosures.

Any other product can have a similar effect. Overuse of your credit cards can lead to consumer debt. Not making your personal loan payments can lead to loan debt, both resulting in the same kinds of late penalties and interest rate hikes. Irresponsible debt is therefore bad debt.

Want to learn how to create a plan to tackle your debt? Click here.

How Nova Scotia Borrowers Fall Into Debt

Debt, whether it’s good or bad, does not fall out of the sky. For the most part, you have to willingly apply for it. Those same types of debt don’t just come from credit products either. In fact, plenty of situations in Nova Scotia can lead to bad debt, such as:

Car accidents, breakdowns, and other maintenance problems
Typical homeowner costs (utilities, repairs, property taxes, etc.)
Cases of identity theft, debit card fraud, and scams
Not enough hours at work or losing your job entirely
Medical emergencies or injuries that prevent you from working
Charging too many unnecessary expenses to your credit cards
Paying for a mortgage or car that’s out of your realistic price range
Not budgeting all your recurring expenses properly
Ignoring these costs instead of dealing with them head-on

Look here for some more debt management products for credit users.

The Two Main Debt Consolidation Solutions in Nova Scotia

Before you give up and resort to bankruptcy, remember that debt is only temporary, as long as you’re actively trying to reduce it. While this may be possible by simply increasing your income or using up the money you’ve saved, unmanageable debt can often require more drastic methods of payment or, in this case, consolidation.

Debt Consolidation Loans

Our first consolidation solution can be acquired through your bank, credit union, or another type of creditor. Debt consolidation loans are reserved for those who have multiple debts from many sources. Those debts can quickly become unmanageable because they all have different payment dates and come in varying amounts. Therein lies the most beneficial part of a debt consolidation loan. Upon approval, you can use your loan to pay off all your other debts. You’ll then pay back your loan through monthly installments, usually with a lower interest rate than other credit products, which is an added bonus. Once your other debts are gone, you’ll be left with just the one payment to keep track of. Simple and effective.

Additional Things to Consider

Like any credit product in Nova Scotia, debt consolidation loans have some potential drawbacks that should be considered before you apply, including but not restricted to:

A decent credit score (usually 650 or higher) is often required for approval
A reasonable income is also essential to prove you can make payments on time
Lower credit scores and incomes, while sometimes acceptable, may result in higher, more expensive interest rates
Further debt issues and credit damage will occur if you default on your payments

Debt Consolidation Programs

A similar technique in Nova Scotia can be seen with a debt consolidation program. Again, you would be consolidating all your higher interest debts at once, leaving you with only one monthly payment. However, this solution involves applying for an instructive course, where you’ll be getting advice from a certified professional. In this case, a credit counsellor. That counsellor will contact your creditors on your behalf to stop further debt collection attempts against you. You’ll then begin making payments to your credit counsellor, who will send them to your creditors. These programs are a better option for Nova Scotia borrowers that either can’t get approved for a debt consolidation loan or are unable to manage their debts without the help of a professional.

Additional Things to Consider

Again, debt consolidation programs in Nova Scotia are not without their drawbacks, so carefully consider them before you apply. For instance:

Some credit counselling agencies in Nova Scotia are non-profit, while others may charge a fee for their services.
Several credit counselling sessions may be mandatory. While you’ll receive some vital information, you might have to attend them for the program to be completed.
These programs are not legally binding, so it’s possible that your creditors will not accept the program or may opt out whenever they want.
If accepted, your program may last 3-5 years, meaning you’ll continue to be in debt during that time.
Once again, more debt and damage to your credit will happen if you don’t make all your payments on time and in full.

For more information about credit counselling in Nova Scotia, look here.

Debts That Meet the Standards For Consolidation

Before you apply for either of these debt consolidation techniques, there is one more important detail to consider. Regrettably, only certain types of debt will meet the standards for consolidation, namely unsecured debts that do not involve any form of collateral (home, car, or another asset). Most secured debts, which do not have collateral attached to them, will not qualify.

Debts That Qualify

Personal or retail-location credit cards
Personal lines of credit
Personal, installment, or short-term loans (if unsecured)
Cell-phone, internet, and utility bills
Student loan debt
Other types of unsecured debts

Debts That Do Not Qualify

Mortgage payments
Car/vehicle loan payments
Home equity loans or HELOCs (home equity lines of credit)

Check out this infographic to learn how your credit score is calculated.

The Potential Effect On Your Credit

As we mentioned, your credit health can affect your ability to qualify for debt consolidation in Nova Scotia. Like with any type of credit product, a low credit score can make you look like a risky borrower and mean that you would default on your payments. However, another resemblance that debt consolidation shares with other credit products is the effect that either a loan or a program can have on your credit.

Don’t understand your credit score or credit rating? Check this out.

Whether it’s for a consolidation loan or program, the payments you make will be reported by your creditor to Equifax or TransUnion (creditors generally work with only one credit bureau). In turn, your credit score will fluctuate. Payments that are made in full and on schedule will raise your score, making it easier for you to be approved for credit products with reasonable interest rates in the future. Payments that are late, short or missed altogether will have the opposite effect. Again, make sure you consider these potential consequences before you apply for either consolidation product.

Searching for a bad credit loan in Nova Scotia? Try looking here.

Frequently Asked Questions

What’s the difference between a debt consolidation loan and a regular loan?

There are no major functional differences between consolidation loans and a regular loan. So long as you use a low-interest loan to pay off many high-interest loans, you’re consolidating. It’s important to note credit counseling and consumer proposals are forms of consolidation, but they are not loans. Instead, the interest or total amount of debt is renegotiated with your creditors.

What are the requirements for a debt consolidation loan?

There will be different approval criteria for different products. In order to qualify at all, you cannot be enrolled in a debt consolidation program. This includes credit counseling, consumer proposal, or bankruptcy. You also need a stable income and a moderate debt-to-income ratio. If you cannot qualify, then consider a debt consolidation program where there is no new loan involved.

What types of debt can I consolidate?

Some debts are better suited for consolidation than others. Unsecured high-interest debts like credit cards and personal loans work best. However, student loans or overdue taxes shouldn’t be consolidated as better payment arrangements can be negotiated directly. You typically do not include secured loans in debt consolidation either. This includes car loans, mortgages, and home equity lines of credit. Those can actually be renegotiated into consolidation roles which you can roll your unsecured debts into.