Best Debt Consolidation Loan and Credit Consolidation Loans Canada

by Kevin Jones

You might be surprised to read about the best credit and debt consolidation loans in Canada on a website called “No More Debts,” but there is such a thing as good debt? It’s debt that helps move you forward with your life goals, whether that’s smart student loans to complete your education or an affordable mortgage to work towards owning your home. Bad debt does the opposite. When your money and energy are tied up paying down expensive credit card debt or high-interest emergency loans, then debt is holding you back from what you really want to do.

So are debt and credit consolidation loans “good”? Well, they can certainly be better than keeping a bunch of bad debts. The best consolidation loans should simplify your payments and charge you less interest. This means that you’ll have less payments to keep track of every month and you’ll save money in the long run. However, they can do a lot of bad things as well. Make sure you know exactly what you’re getting into when considering debt consolidation.

1. Online Debt Consolidation Loans
Credit Consolidation Loans Canada

Getting an online debt consolidation loan isn’t really any different from getting an offline debt consolidation loan. Either way, make sure the loan conditions fit your needs, including the interest rate, what your monthly payments will be, and how long it will take to pay off. Lenders in Canada are required to provide a disclosure statement with every loan. It will outline this information and include your total cost of borrowing the money for the credit consolidation as well. Searching on the web will give you more options than you’d have locally, which you can take advantage of by comparing different lenders against each other.

Like with any other online financial service, take extra care to make sure that the company giving you the loan is legitimate. Red flags include not enough details about the loan conditions, little to no reviews, and attempts to get you to pay a fee. Also remember the golden rule: if it looks too good to be true, then it’s probably a scam.

2. Do Loans Hurt Your Credit Score?

Like all loans, getting one for debt consolidation requires a credit check; this will have a temporary impact on your credit score. However, unlike the debt you’re struggling with now, a debt consolidation loan will work to get your payments on track, helping you set up monthly payments and a plan to best help you consolidate debt. Making your payments on time is one of the best things you can do to help improve your credit score.

A consolidation loan will also help to bring down what you owe – not add to it. Successfully paying down and eliminating your debt is important for your credit rating. Lenders like to see this progress as it unfolds so one credit consolidation loan will help improve your credit score in the long run. However, relying on debt and credit consolidation loans will not bode well for your credit score. If you have to keep consolidating what you owe, it shows that you can’t manage your credit and lenders will be leery to lend you more.

3. Can I Get a Loan with Bad Credit?
Beware Guaranteed Consolidation Loans for Bad Credit Canada

Bad credit makes it harder to qualify for a good debt consolidation loan, and then a guaranteed consolidation loan might feel like your only option. A good loan must have favourable conditions that makes it easier to get out of debt, not harder. A lower credit rating likely means you’ll have to deal with a higher interest rate. You may also need to provide collateral or get a co-signer. It’s also best to steer clear of “guaranteed” consolidation loans because they’re usually guaranteed to be extremely expensive.

Whether your credit is good or bad, remember that more debt won’t get you out of debt – especially if having more and more credit is what got you here in the first place. A consolidation loan will only help as part of a wider plan. To have a strong shot at success, you also need to immediately pay off and close the consolidated credit accounts. Most importantly, you must use a budget that details when and how you’ll make your loan payments.

4. Best Debt Relief Companies in Canada
Should I Get a Debt Consolidation Loan?

The best debt relief companies, when you’re looking for a consolidation loan, are trusted lenders with interest rates and conditions that fit your needs. While the big banks (BMO, TD, Scotiabank, CIBC, and RBC) are safe choices, smaller companies can be worth considering. Since every lender has their own criteria, you’ll have to shop around to figure out which has the best conditions for you. If your credit rating is still okay, then even if a company doesn’t offer “debt consolidation” loans, a personal loan that you can use for debt consolidation might be an option. It’s then up to you to use the loan to consolidate your debt, not get into more of it.

Be aware that many specialized “debt relief” companies provide debt settlement, consumer proposal, or bankruptcy services rather than consolidation loans. These are all very different options from a loan and can have far worse consequences if used incorrectly. If what you want is a loan to consolidate your debt, then make sure that’s exactly what you’re getting.

5. What Is the Smartest Way to Consolidate Debt?

The smartest way to consolidate debt is to do it for your future, not your present. People who consolidate just so they can have a bit more money to spend right now will only dig themselves deeper into trouble. Smart consolidation also means bringing interest rates on your debts down, having a manageable monthly payment, staying away from other credit, and following a concrete plan to become debt-free. Right now is only temporary, but effectively tackling that debt now will help keep the stress from following you into your future.

While consolidating high-interest unsecured debts can be a smart strategy, consolidating secured debts sometimes isn’t worth it. It’s often unlikely that you’d get better rates for a new unsecured loan than you already have for a secured one. Lenders also aren’t as open to negotiation on repaying secured debts, making it harder to get benefits from consolidation. However, hard isn’t the same as impossible. If you’re struggling with a high interest secured debt, it’s still worth trying to pay it off with a consolidation loan.

6. What Is the Best Way to Consolidate with Bad Credit?

When you have bad credit, a loan is often not the best way to consolidate your debt. Not only is it more difficult to qualify for loans when you have a lower credit rating, but any loans you do get approved for will be more expensive. This can defeat the point of consolidating in the first place and even end up making things worse.

Rather than borrow more money, the best way to consolidate with bad credit is to consolidate your debt payments, not the loans themselves. It’s an option many Canadians don’t know much about. Consolidating your payments can be done by starting a debt management program with a non-profit credit counselling organization like us. You make 1 monthly payment to the non-profit, who then distributes that payment to the creditors you owe money to. The non-profit will negotiate with creditors to bring down your interest rates, basically giving you the benefits of a debt consolidation loan without the risks of borrowing more money. A professional credit counsellor will also advise you and help you stay on track to reach your financial goals.

7. Secured vs Unsecured Debt Consolidation Loans

It might be necessary to consider a secured debt consolidation loan over an unsecured loan when you’re already carrying a lot of debt. The difference is that for secured loans, you provide an asset as collateral; if you end up not being able to repay the loan, then you’ll lose your collateral. This can be a scary thought, but securing your loan helps you get approved. Your interest rate should also be lower, usually no more than about 10% for a first consolidation loan, which makes it easier to pay off what you owe.

The most popular form of secured debt for anyone who owns a home actually isn’t a loan at all – it’s a home equity line of credit (HELOC). Like with credit cards, you have an amount of credit you can use at any time, only pay interest on what you’ve borrowed, and can pay your balance off at any time without penalty. If you own a home with a lot of equity, then this can be one of the cheapest ways to consolidate your debt. However, it’s also a slippery slope for those tempted to use their home equity as a personal ATM. Like a consolidation loan, the line of credit should only be used to consolidate your other debts, not create new ones.

8. Where Can You Go to Find the Best Debt Consolidation Options?

There’s no need to figure out the best debt consolidation loans by yourself. Beyond getting a loan from a company, other options include a secured line of credit, a credit card balance transfer, a loan from family or friends, and a debt management program. Still have questions like “Which balance transfer credit card is best?” Feel overwhelmed by all the different choices? Our non-profit credit counsellors will answer your questions and can point you in the right direction. We do this by helping you review each of your options with your specific goals and circumstances in mind. Let us help you get back onto the right track in a free and confidential appointment. You can reach out at 1-888-527-8999, make an email inquiry, or start an online chat. We’re here to help!

Last Updated on July 10, 2024