How To Consolidate Debt In Quebec
Many Canadians consider debt consolidation as a way to manage their debt. There are a handful of ways to consolidate debt, such as the following:
1. Debt Consolidation Loans
A debt consolidation loan lets you combine multiple debts into one loan with a fixed payment and often a lower interest rate. This type of loan streamlines debt repayment into one account, making it easier to manage your debt and potentially save you money on interest.
Keep in mind that qualifying for a debt consolidation loan typically requires good credit. Plus, the loan doesn’t get rid of the debt, but restructures it to simplify repayments and reduce interest costs.
There are different types of loans that you can take out for the purpose of consolidating your debt:
Personal Loans
A personal loan is a type of loan that you can use for a variety of purposes, including debt consolidation. These loans typically have fixed rates and repayments, with monthly payments spread out over a set term. The amount you can borrow and the interest rate you’re offered depend on things like your income and credit score.
When Should You Use A Personal Loan For Debt Consolidation?
A personal loan may be suitable for debt consolidation purposes in the following cases:
- You Have A Good Credit Score— If your credit is strong, you may be better able to qualify for a low-interest rate and higher loan amount to cover all your high-interest debt. In this case, a personal loan may be worth considering.
- You Don’t Want To Back The Loan With Collateral — If you prefer not to put up an asset of value to secure the loan — such as your home or vehicle — then an unsecured personal loan may be a good option. Just keep in mind that you may pay a higher rate as a result, so make sure the rate is lower than your highest-rate debt before you apply.
| Can I Get A Debt Consolidation Loan If I Have Bad Credit? Debt consolidation loans from traditional lenders typically require good credit. Your best bet would be to consolidate your debt before you start missing payments. That said, you may still qualify for a debt consolidation loan with bad credit if you apply with an alternative lender. You may also want to explore other options, like home equity loans and HELOCs, which focus more on your equity than your credit score. |
HELOC
A home equity line of credit (HELOC) is a type of revolving loan that lets homeowners borrow from their home equity. If you have enough equity built up, you could qualify for a HELOC, which allows you to access a credit line you can draw from as required, similar to a credit card.
Interest is only charged on the amount you use, and once you repay what you’ve withdrawn, you can borrow from it again and again. You can use the money for a variety of purposes, including debt consolidation.
When Should You Use A HELOC For Debt Consolidation?
A HELOC may be suitable for debt consolidation purposes in the following cases:
- The Rate You’re Offered Is Low — Since a HELOC is backed by your house, you may be able to secure a lower rate than an unsecured loan. This can translate into significant savings.
- You Want To Keep Payments Low —During the draw period, you only need to pay interest on the funds withdrawn. This can help keep your payments low while you straighten out your finances.
Home Equity Loan
A home equity loan is a type of loan that lets homeowners borrow money from their home equity. This type of loan typically comes with a fixed interest rate and repayments and is paid back through regular installment payments over a set term. Like the previous two loan types, you can use the money from a home equity loan for the purpose of consolidating your debt.
When Should You Use A Home Equity Loan For Debt Consolidation?
A home equity loan may be worth considering for debt consolidation purposes in the following cases:
- You Want A Lower Rate — If you’re currently paying very high interest rates on your existing debt, securing a lower interest rate with a home equity loan can help minimize your overall costs and reduce your monthly payments.
- You Prefer Regular, Fixed Payments — If you’re more comfortable with predictable, fixed installment payments, versus the flexible withdrawals and repayments that come with a HELOC, then a home equity loan may be more suitable for you.
| Will Consolidating My Debt Hurt My Credit? By consolidating your debt, you could face certain negative effects, like the following: Hard credit check: Hard credit inquiries can negatively impact your credit. When your lender pulls your credit report, your credit score could take a slight hit, though this is usually temporary. Closed credit accounts: When you close your accounts, your credit score could decrease for a couple of reasons. Firstly, you’ll be shortening your credit history when you eliminate older credit accounts. Further, you could increase your credit utilization ratio by getting rid of credit limits associated with the credit accounts you’ve closed. |
How Much Can You Save Through Debt Consolidation?
You can potentially save thousands of dollars in interest with debt consolidation, depending on the following:
- Your current debt load
- Your current interest rates
- Your loan term
To help you get a sense of how much you can potentially save through debt consolidation, let’s use an example. For instance, let’s say you’re currently carrying balances on a credit card and personal loan with a 5-year term. In the following chart, we’ll compare how much your debt would cost if you continued to keep these debts versus the cost of combining them into one consolidated loan:
| Credit Card | Personal Loan | Totals When Debts Are Separated | Totals With Debt Consolidation | |
| Total Debt | $7,000 | $12,000 | $19,000 | $19,000 |
| Interest Rate | 20.99% | 18% | 18% — 20.99% | 10% |
| Monthly Payments | $189.33 | $304.72 | $494.05 | $403.69 |
| Total Interest Paid | $4,360.05 | $6,283.27 | $10,643.32 | $5,221.63 |
As you can see, you could slash your monthly payments by $90.36 if you consolidated your debt. You could also save $5,421.69 in interest over the loan term.
2. Balance Transfers
A credit card balance transfer allows you to move your existing credit card balance from one card to another, typically to take advantage of a lower interest rate. Many balance transfer credit cards offer a promotional 0% interest rate for a certain period, which allows you to repay your credit card debt faster without accruing additional interest.
Note: Balance transfers often come with fees, which typically range from 3% to 5% of the amount transferred. Make sure you do the math first to see if the savings outweigh the costs of transferring your balance.
| Warning: The regular interest rate will kick in after the introductory period ends, so you need to make sure you pay down as much of your balance within this time frame. Otherwise, you’ll wind up carrying that balance going forward and will be subject to a much higher interest rate. |
When Should You Use A Balance Transfer For Debt Consolidation?
A balance transfer may be a good option for debt consolidation purposes in the following cases:
- You Have A Lot Of High-Interest Credit Card Debt — If you have credit card debt with high interest rates, and you can qualify for a balance transfer card with a lower or 0% introductory rate, transferring your balance can help you reduce interest charges.
- You’re Able To Pay Your Balance Within The Introductory Period — If you have the financial means to pay down your balance within the introductory period, then moving your credit card debt to a balance transfer card may be a good idea.
- You Have A Good Credit Score — You’ll likely need a good credit score to be eligible for a balance transfer card. If your credit score is at least 660, then you should have little trouble qualifying.
3. Debt Management Program
A debt management program (DMP) is a structured repayment plan that is meant to help Canadians pay down their unsecured debts, like credit cards and unsecured personal loans, over a certain period.
This program is usually facilitated by a credit counselling agency, which negotiates with your creditors to reduce interest rates, consolidate debts, and establish a plan for repaying your debt. A DMP can help you stabilize your finances and avoid more severe alternatives, like bankruptcy.
What Types Of Debts Can Be Included In A DMP?
DMPs are typically used for unsecured debts, like credit cards and unsecured personal loans. These programs usually don’t deal with secured debts, like mortgages or car loans.
When Should You Use A DMP For Debt Consolidation?
A DMP may be suitable for debt consolidation purposes in the following cases:
- You’re Struggling With Several Unsecured Debts — If you’re carrying lots of unsecured debt and are paying high interest rates, then a DMP may help to consolidate your debt and slash your rates and fees.
- You Can Still Make Monthly Payments — If you’re still financially capable of making payments every month but need lower interest rates and a more manageable repayment plan, then a DMP can help.
- You Want To Avoid Bankruptcy — A DMP may help you manage your debt before the situation worsens to the point where bankruptcy is your only option.
Where Can You Find A Debt Management Program In Quebec?
Credit counselling firms usually arrange DMPs, as noted earlier. Multiple credit counselling agencies are available across Canada, including the following:
| Company | Services Offered | Popular Locations Available In Quebec | |
| 4 Pillars | Credit counselling Credit rebuilding Debt consolidation Consumer proposals Bankruptcy | – 970 Mnt de Liesse, Suite 214, Saint-Laurent, QC H4T 1W7 – Suite 212, 6655 boulevard Pierre-Bertrand, Lebourgneuf, QC G2K 1M1 | Learn More |
| Consolidated Credit | Credit counselling Debt management Debt consolidation Consumer proposal Bankruptcy | – 1250 René Lévesque Boulevard West Suite 2200 | Learn More |
| BDO Debt Solutions | Debt counselling Consumer proposals Bankruptcy | – 655 Promenade du CentropolisR224, Laval, Quebec, H7T 0A3 – 1000 Rue De La Gauchetière Ouest #400, Montréal, Quebec, H3B 4W5- | Learn More |
| Raymond Chabot | Debt consolidation Consumer proposals Bankruptcy | – 3550 Rue Rachel Est, Bureau 103, Montréal, QC H1W1A7 – 2500, Daniel-Johnson Blvd., Suite 415, Laval, QC H7T 2P6 – 4805, Lapinière Blvd., Suite 3300, Brossard, QC J4Z 0G2 | Learn More |
Financial Help From The Quebec Government
| Financial Resource | |
| Social Assistance Program | Learn More |
| Social Solidarity Program | Learn More |
| Basic Income Program | Learn More |
| Rent Supplement | Learn More |
| Low-Rental Housing | Learn More |
Alternatives Debt Relief Solutions In Quebec
The best way to deal with your financial woes is to manage them early enough before more drastic measures are required. For instance, improving your budget, speaking with a credit counsellor, and consolidating your debt can help.
However, if your financial problems are far too much for these solutions to handle, you may need to resort to harsher options, like debt settlement, consumer proposal, or bankruptcy. It’s important to understand that while these programs may help you reduce or get rid of your debt, your credit score will be negatively affected.
Debt Settlement
Debt settlement is a process where you negotiate with your creditors to reduce your outstanding debt owed. Rather than repaying the entire balance, you agree to pay a lump sum of money as repayment or take part in a structured payment plan that involves an amount less than the original debt. If your creditors accept the settlement and payment is made, your remaining debt will be considered forgiven.
Consumer Proposal
A consumer proposal is a legally binding agreement between you and your creditors to pay part of your total debt or extend the time to pay it back. The process is administered by a Licensed Insolvency Trustee (LIT) and allows you to keep your assets while addressing your debts.
The proposal typically includes reduced payments over a fixed period, which your creditors must agree to. Once you meet the terms of the proposal, including making payments, your remaining debt will be forgiven.
Bankruptcy
Like a consumer proposal, bankruptcy is a legally binding process that can help you eliminate or repay your debts when you’re unable to meet your financial obligations. It also must be facilitated by an LIT. Unlike a consumer proposal, however, you may need to surrender some of your assets, with certain exceptions.
Bankruptcy is the most comprehensive way to get rid of your debt and stop any collection calls, lawsuits, and wage garnishment. Depending on your situation, bankruptcy can last 9 to 21 months.
