Consolidating debt is a popular debt relief solution for many Canadians. There are a few ways you can consolidate your debt, including the following:
- Debt consolidation loan
- Debt management program (DMP)
- Balance transfer
1. Debt Consolidation Loans In Ontario
A debt consolidation loan is a financial tool you may use to combine several debts — such as unsecured personal loans, credit card balances, and other high-interest debts — into a single loan. The idea behind debt consolidation is to simplify loan repayments by having only one monthly payment and save money with a lower interest rate compared to rates of all current debts.
Several types of loans can be used to consolidate your debt:
Personal Loans
A personal loan provides a lump sum of money that you repay, along with interest, via regular installments over a set term. Personal loans can either be secured or unsecured. If you opt for a secured personal loan, you may be offered better rates and higher loan amounts because the collateral reduces the lender’s risk.
When Is A Personal Loan Best For Debt Consolidation?
- You Have Good Credit — If you have a good credit score and can qualify for a low interest rate and loan amount that’s high enough to pay off all your high-interest debt, then a personal loan is worth considering.
- You Don’t Want To Use Collateral — If you prefer to avoid risking the potential loss of collateral, such as your house, then an unsecured personal loan may be a good option. Just make sure the rate you’re charged on your personal loan is less than your highest-rate debt before applying.
| Will Consolidating My Debt Hurt My Credit? Consolidating your debt could have negative effects. Your credit may be negatively affected by any hard credit checks when getting the loan. Moreover, if you pay and close the credit accounts you are consolidating, it can reduce your credit account age and credit mix, which can negatively affect your credit. |
HELOC
A home equity line of credit (HELOC) is a revolving line of credit that lets homeowners tap into their home equity. It’s a secured form of financing that uses your home as collateral. You can access funds up to a certain limit based on the equity you have in your home.
During the draw period, you can withdraw money as needed and only pay interest on the withdrawn amount. Once the draw period ends, you’ll enter the repayment period, which requires repayment of both principal and interest.
When Is A HELOC Best For Debt Consolidation?
A HELOC may be suitable for debt consolidation purposes if the following apply:
- You Can Secure A Lower Interest Rate — Interest rates on HELOCs are often lower than unsecured loans because they’re backed by a valuable asset: your home. By securing a lower rate, you can save quite a bit of money by consolidating all your high-interest debt.
- You Want Low Payments— If you need some time to figure out your finances, a HELOC can provide you with low payments as you can simply pay the interest to remain in good standing.
Home Equity Loan
Like a HELOC, a home equity loan allows you to tap into your home’s equity to cover a variety of expenses, including debt consolidation. Unlike a HELOC, however, a home equity loan is not revolving credit, and instead works much like a regular loan. You’ll receive a lump sum payment and will repay the loan over time through installments.
When Is A Home Equity Loan Best For Debt Consolidation?
A home equity loan may be a good option for debt consolidation purposes if the following apply:
- You Want A Low Interest Rate — If your current balances are very high, a low interest rate can help reduce your payment amounts as well as your overall costs.
- You Prefer Fixed Payments — If you like the idea of fixed, predictable payments on the same day every month, versus more flexible draw and repayment phases that are characteristic of a HELOC, then a home equity loan may work well.
| Can I Get A Debt Consolidation Loan If I Have Bad Credit? While debt consolidation loans from traditional banks usually require good credit, you may still qualify for one by applying with an alternative lender who have more lax lending criteria, including lower credit score minimums. Moreover, if you have bad credit, you can apply for secured loans such as a HELOC to secure lower interest rates. |
Best Loans For Debt Consolidation
How Much Can You Save Through Debt Consolidation In Ontario?
Your potential savings with debt consolidation can vary greatly depending on how much debt you’re consolidating, the interest rate you’re currently paying versus the rate of your debt consolidation loan, and your loan term.
Let’s illustrate how much you could potentially save with a debt consolidation loan.
In this example, we’ll assume that you have a credit card and personal loan that you’re currently paying off on a 5-year term. Then, we’ll compare how much your debt would cost you if you continue to pay these debts separately versus how much it would cost you if you combined them into one loan through debt consolidation:
| Credit Card | Personal Loan | Totals When Debts Are Separated | Totals With Debt Consolidation | |
| Total Debt | $5,000 | $10,000 | $15,000 | $15,000 |
| Interest Rate | 21.99% | 18% | 18% — 21.99% | 12% |
| Monthly Payments | $138.07 | $253.93 | $392.00 | $333.67 |
| Total Interest Paid | $3,283.97 | $5,236.06 | $8,520.03 | $5,020.00 |
Based on these figures, you would reduce your monthly payments by $58.33 if you consolidated your debt. What’s more, you’d save $3,500.03 in interest over the 5-year term.
2. Balance Transfers
If you have a lot of high-interest credit card debt you want to consolidate, then a balance transfer may be suitable. A credit card balance transfer involves moving balances from one credit card to a new one, usually with a much lower interest rate or a 0% introductory rate for a set term, usually 6 to 21 months.
When you transfer the balance, all your credit card debt is consolidated in one place at a lower rate. The goal is to pay down the balance during the promotional period without accruing interest. Doing so can save you a significant amount of money in interest.
Note: When you move the balance of one credit card to another, you’ll typically be charged a balance fee, which is usually around 3% to 5% of your transfer balance. Make sure to crunch the numbers to ensure the fees don’t outweigh the savings of your balance transfer.
| Warning: If you don’t pay down your debt before the promotional period ends, you’ll end up carrying that balance forward and paying the regular interest rate once the introductory period expires. |
When Is A Balance Transfer Best For Debt Consolidation?
A balance transfer is worth considering for debt consolidation purposes if the following apply:
- You Have Lots Of High-Interest Credit Card Debt — If you’re carrying significant high-interest credit card debt, a balance transfer credit card can help you save a lot of money by lowering interest payments.
- You Can Pay Your Balance Within The Promotional Period — The idea behind a balance transfer is to pay off your balance within the promotional period. If you have the means to do so, then a balance transfer might make sense. But if you don’t pay off the full balance during this time frame, the regular rate — which will be much higher than the promotional rate — will kick in, and you’ll start paying more in interest again.
- You Have Good Credit — Balance transfer offers are generally available to those with good credit. If your credit score is healthy, a balance transfer card may work for you. But if your score is a little low, you may not qualify for the best deals.
3. Debt Management Program In Ontario
A debt management program (DMP) is a process that involves a credit counsellor negotiating with your creditors on your behalf to repay your debts in a way that is more affordable and manageable for you. You’ll initially meet with a credit counsellor, who will review your financial situation to determine if a DMP is suitable.
Then your credit counsellor will negotiate with your creditors to reduce your interest rates, waive fees, or stop collection calls. If your creditors accept your counsellor’s payment arrangement, your debts will be consolidated into a single monthly payment. These payments are made to the credit counselling agency, which will then distribute the funds to your creditors.
DMPs usually last around 5 years, during which time you’ll make regular monthly payments until your debts are fully repaid according to the agreed-upon repayment schedule.
What Types Of Debts Can Be Included?
DMPs are generally used for unsecured debts, such as credit cards and personal loans. Secured debts, like mortgages or auto loans, are typically not included in a DMP.
When Is A Debt Management Program Best For Debt Consolidation?
A DMP may be worth considering for debt consolidation purposes if the following apply:
- You’re Struggling With Multiple Debts — If you’re feeling like you’re drowning in debt and can’t manage all the different payments that continue to pile in with different due dates, a DMP can help streamline your payments into one, easily-managed payment.
- You Have High-Interest Credit Card Debt — If you have a lot of high-interest debt, like credit card debt, a DMP may help you lower your interest rates and make your payments more affordable.
- You Need Guidance — If you have the income needed to cover your bill payments to some degree but just need some help and a structured plan to repay them, then a DMP may be helpful.
Where Can You Find A Debt Management Program?
As mentioned, credit counselling agencies facilitate the process of creating and administering a debt management plan. Several credit counselling agencies are available across Canada, such as the following:
| Company | Services Offered | Locations Available | |
| 4 Pillars | Credit counselling Credit rebuilding Debt consolidation Consumer proposals Bankruptcy | Everywhere except PEI & the territories | Learn More |
| Consolidated Credit | Credit counselling Debt management Debt consolidation Consumer proposal Bankruptcy | All provinces & territories | Learn More |
| BDO Debt Solutions | Debt counselling Consumer proposals Bankruptcy | Everywhere except Yukon | Learn More |
| Raymond Chabot | Debt consolidation Consumer proposals Bankruptcy | Ontario Quebec New Brunswick | Learn More |
4 Pillars
4 Pillars is a Canadian-based debt relief firm that helps consumers restructure and manage their debt. Since 2002, the company has helped Canadians reduce their debt through debt consolidation, consumer proposals, and other debt management strategies.
Consolidated Credit
Consolidated Credit is a Canadian credit counselling agency that provides financial education and debt counselling services to those struggling with debt management. Their goal is to help Canadians manage and reduce their debt or connect them with a Licensed Insolvency Trustee (LIT) in more serious financial situations.
BDO Debt Solutions
BDO Debt Solutions is a service that helps Canadians manage and resolve their debt problems. The company specializes in offering customized debt relief solutions, including credit counselling, budgeting, debt consolidation, and consumer proposals.
Raymond Chabot
Raymond Chabot is a Canadian company made up of a team of LITs, financial counsellors, and other industry professionals. The company offers a variety of financial services that are focused on helping consumers and businesses better manage their debt. Their services include credit counselling, debt consolidation, consumer proposals, and bankruptcy.
Additional Government Benefits Available In Ontario
Alternatives Debt Relief Solutions In Ontario
Ideally, you’ll nip your debt problems in the bud and resolve your financial issues before they get out of control. This can include credit counselling, better budgeting strategies, and debt consolidation.
However, if your issues are much too significant for these solutions to resolve, you may have to resort to more severe options, including debt settlement, consumer proposal, or bankruptcy. Keep in mind that while these solutions can reduce or eliminate your debt, your credit score will take a significant hit.
Debt Settlement
Debt settlement involves a representative from a debt settlement company negotiating with creditors to come up with a repayment plan that works for everyone involved. If the creditors agree to the proposed arrangement, you’ll make a lump sum payment to the debt settlement company, who will then pay and settle your debts with your creditors.
Consumer Proposal
A consumer proposal is a legally binding process that involves a LIT negotiating your debt with your creditors. Your LIT will propose a new repayment plan, and if your creditors agree to it, you’ll repay the agreed-upon portion of your debts over a set time frame, typically up to 5 years.
A consumer proposal may be an option if you have debts that are less than $250,000 (excluding mortgage debt). Depending on the situation, a consumer proposal can help lower your unsecured debts by up to 80%.
Bankruptcy
Bankruptcy is another legal process that should only be considered a last resort given the severe impact on your credit score. If you cannot repay your debts, then bankruptcy may be considered, as it provides a structured way to eliminate your debts while protected under the law. This is the most effective way to get rid of unmanageable debt, end collection calls, and stop legal fines.
Bankruptcy can only be administered by an LIT. To complete your bankruptcy, you’ll make payments to the court over 9 months (or up to 21 months if you have surplus income). Then, you’ll be discharged from bankruptcy.
Debt Consolidation FAQs
Will debt consolidation affect my credit score?
Can I consolidate my student loans?
What do I need to qualify for debt consolidation?
Are there risks with debt consolidation?
What types of debts can be consolidated?
®Fairstone Financial Inc. is a wholly owned subsidiary of Fairstone Bank of Canada.
*Interest rates are subject to change. Actual Annual Percentage Rate (APR) varies based on the province of residence and individual factors like credit details and loan amount. The interest rate on an unsecured personal loan is 31.99% in BC.
Fairstone Financial Inc. holds high-cost credit licenses in AB, MB (License #85047, expiring 20-02-2026) and QC; it has applied for a high-cost credit grantor license in NL. For license information by province, visit Fairstone.ca/HCCG
