Debt Consolidation
Discover ways to consolidate your debt.

What is Debt Consolidation?

Debt is a numbers game, and bringing the numbers down is your goal. Debt consolidation takes multiple debts or payments and combines them so that you only have one payment to make. Having fewer payments each month is always a relief, not to mention the savings you get if your debt is consolidated at a lower interest rate. But the thought of borrowing more money to pay off what you owe can be scary. Learn about the different kinds of debt consolidation to find the right solution for you.

Common Reasons to Consolidate Your Debt

If you’re thinking about consolidating your debts but are not sure how to do it, it might help to think about why you need to consolidate. When you can figure out what caused your debt problem, it’s easier to choose the best option for getting back on track. Here are some common reasons why people want to consolidate:

  • Living expenses have gone up and you can no longer make the monthly payments on all your debts.
  • Payments on high interest credit card debts are eating into your budget.
  • You have so many debts that it’s hard to keep track of them all, causing missed or partial payments.
  • A build-up of debt due to financial challenges like lost or reduced income.

Make Repayment Simple

Consolidation simplifies your finances. If you have multiple debts from multiple creditors with multiple interest rates, repayment schedules, and other conditions, then keeping track of them all can feel overwhelming. When you consolidate your debts or payments, you’ll only have to keep track of one payment. If some or all of the debts you’re carrying have high interest rates, then consolidating them with a lower interest rate will also save you money. All consolidation options do this, but they work in different ways. Get a snapshot of each with their pros and cons below.

Debt Consolidation Loan

A consolidation loan is when you borrow money to pay off other debt. The money from the new loan pays off the other debts, the accounts are often closed, and then you only make payments on this one new loan. A debt consolidation loan will often have a lower interest rate than what your other debts are charging you.

There might also be better terms and conditions, but each lender is different. Qualifying for a consolidation loan could be hard once you’re behind on your payments, or it could put assets like your home at risk if you use them as collateral. But the biggest danger with consolidation loans is that you can end up doubling your debt if you don’t carefully live with a budget while you’re paying off the loan.

Pros:

  • One payment
  • Often a better interest rate

Cons:

  • Need to qualify
  • Can make your debt load worse
  • Can impact your credit rating for a while

Debt Consolidation Loan

A consolidation loan is when you borrow money to pay off other debt. The money from the new loan pays off the other debts, the accounts are often closed, and then you only make payments on this one new loan. A debt consolidation loan will often have a lower interest rate than what your other debts are charging you. 

Close up of hand holding bills with a calculator and stack of coins

There might also be better terms and conditions, but each lender is different. Qualifying for a consolidation loan could be hard once you’re behind on your payments, or it could put assets like your home at risk if you use them as collateral. But the biggest danger with consolidation loans is that you can end up doubling your debt if you don’t carefully live with a budget while you’re paying off the loan.

Pros:

  • One payment
  • Better interest rate

Cons:

  • Need to qualify
  • Can make your debt load worse
  • Can impact your credit rating

Credit Card Balance Transfer

Credit cards often offer attractive promotions, but these come with strict terms and conditions. Paying off your credit card debts with a new credit card is possible, but risky. Even if the new card has a low interest rate for your consolidated debt, that low rate often won’t apply to any new purchases you make. Also, if you haven’t paid off the balance transfer amount by the time the promotional rate expires, you could be saddled with hefty payments.

However, one advantage of a balance transfer is flexibility: you can aggressively tackle the debt, but in an emergency, you can also temporarily fall back to making minimum payments.

Pros:

  • Payment flexibility
  • Low interest rate to start

Cons:

  • Need to qualify
  • Could keep you in debt longer
  • Promotional interest rates expire
  • Specifically for consolidating credit card debt

Credit Card Balance Transfer

Credit cards often offer attractive promotions, but these come with strict terms and conditions. Paying off your credit card debts with a new credit card is possible, but risky. Even if the new card has a low interest rate for your consolidated debt, that low rate often won’t apply to any new purchases you make. Also, if you haven’t paid off the balance transfer amount by the time the promotional rate expires, you could be saddled with hefty payments.

However, one advantage of a balance transfer is flexibility: you can aggressively tackle the debt, but in an emergency, you can also temporarily fall back to making minimum payments.

Pros:

  • Payment flexibility
  • Low interest rate to start

Cons:

  • Need to qualify
  • Could keep you in debt longer
  • Promotional interest rates expire
  • Specifically for consolidating credit card debt
Close up man hand holding credit card and mobile phone sitting at a table

Not sure which option is right for you?

Get answers from an expert.

With so many debt consolidation options out there, it can feel overwhelming to try and find the right one by yourself. One of our professional credit counsellors would be happy to guide you through this process by carefully reviewing your whole financial situation with you and answering any questions you have. Speaking with our certified counsellors is always free, confidential and without obligation. 

Close up of hand holding a pen while using calculator with a book note

Home Equity Line of Credit

A secured line of credit that taps into your home equity can be a good source of funds to fall back on in difficult times. Interest rates are typically quite low, minimum payments can be as low as interest only, and you’ll have flexibility to repay the debt at your own pace. However, repaying debt at your own pace can take forever if you’re not careful. There are also strict qualification requirements, legal fees to set it up, and the risk of losing your home if something goes wrong.

Pros:

  • Payment flexibility
  • No ongoing costs if balance is at zero

Cons:

  • Need enough equity to qualify
  • Can keep you in debt

Debt Settlement

When your finances have been severely impacted and it doesn’t look like the next 5-10 years will be better, but you do have a lump sum of money available, then offering your creditors a settlement might be possible. A debt settlement is a negotiated payment to immediately pay back only a part of the debts you owe in a one-time lump sum. In return, your creditors write off the rest. This will let you pay less than you owe and become debt free instantly, but it can be hard to get creditors to agree to your offer and you’ll need the money ready right away.

Your credit rating will also be affected for 6-7 years after the payment goes through, although that can be reduced to 2 years if you work with a non-profit organization like us. Read more about debt settlement.

Pros:

  • Repay less than you owe
  • Instant debt relief once creditors agree

Cons:

  • Hard to get creditors to agree
  • Lump sum needed before making the offer
  • Affects credit rating

Debt Settlement

When your finances have been severely impacted and it doesn’t look like the next 5-10 years will be better, but you do have a lump sum of money available, then offering your creditors a settlement might be possible. A debt settlement is a negotiated payment to immediately pay back only a part of the debts you owe in a one-time lump sum. In return, your creditors write off the rest. This will let you pay less than you owe and become debt free instantly, but it can be hard to get creditors to agree to your offer and you’ll need the money ready right away.

Your credit rating will also be affected for 6-7 years after the payment goes through, although that can be reduced to 2 years if you work with a non-profit organization like us. Read more about debt settlement.

Pros:

  • Repay less than you owe
  • Instant debt relief once creditors agree

Cons:

  • Hard to get creditors to agree
  • Lump sum needed before making the offer
  • Affects credit rating
Two men talking at an office table, looking at a document

Consumer Proposal

Most people know about bankruptcy, but not as many know about consumer proposals. They are a legal agreement between you and your creditors, brokered by a trustee, to repay less than what you owe. It doesn’t consolidate your debts, but rather consolidates your debt payments. Your debts will still be with your creditors, but you’ll pay your trustee an amount that they will then disburse to your creditors.

Like bankruptcy, filing a consumer proposal is a big decision that could affect your credit and job opportunities for years to come. Read more about consumer proposals.

Pros:

  • No interest
  • Often repay less than you owe
  • Pauses active debt collection on student loans

Cons:

  • Not private – consumer proposals are a permanent public record
  • Typically does a lot of damage to your credit rating for about 8 years
  • Missing more than 3 payments ends your proposal and you can’t file another one
  • High initial and ongoing fees

Consumer Proposal

Most people know about bankruptcy, but not as many know about consumer proposals. They are a legal agreement between you and your creditors, brokered by a trustee, to repay less than what you owe. It doesn’t consolidate your debts, but rather consolidates your debt payments. Your debts will still be with your creditors, but you’ll pay your trustee an amount that they will then disburse to your creditors.

Young couple shaking hands of a counsellor

Like bankruptcy, filing a consumer proposal is a big decision that could affect your credit and job opportunities for years to come. Read more about consumer proposals.

Pros:

  • No interest
  • Often repay less than you owe
  • Pauses active debt collection on student loans

Cons:

  • Not private – consumer proposals are a permanent public record
  • Typically does a lot of damage to your credit rating for about 8 years
  • Missing more than 3 payments ends your proposal and you can’t file another one
  • High initial and ongoing fees

Debt Management Program (DMP)

The journey to becoming debt free can be hard, so why walk it alone? Our debt management program gives you the benefits of payment consolidation and the guidance of an expert credit counsellor. A DMP doesn’t consolidate your debts, but rather consolidates your debt payments. We’ll talk with your creditors to combine your payments into one monthly sum that fits your budget. You pay this to us and we disburse it to your creditors, who will greatly reduce or waive the interest they charge you going forward.

Your credit counsellor will help you stay on track to becoming debt free and will even help you rebuild your credit rating afterwards.

Pros:

  • Greatly reduced or 0 interest
  • Debt free within 5 years
  • Private: DMPs are kept out of public records
  • Credit counselling support

Cons:

  • Can impact credit rating
  • Nominal fee
  • Not all debts can be included

Debt Management Program (DMP)

The journey to becoming debt free can be hard, so why walk it alone? Our debt management program gives you the benefits of payment consolidation and the guidance of an expert credit counsellor. A DMP doesn’t consolidate your debts, but rather consolidates your debt payments. We’ll talk with your creditors to combine your payments into one monthly sum that fits your budget. You pay this to us and we disburse it to your creditors, who will greatly reduce or waive the interest they charge you going forward.

Your credit counsellor will help you stay on track to becoming debt free and will even help you rebuild your credit rating afterwards.

Pros:

  • Greatly reduced or 0 interest
  • Debt free within 5 years
  • Private: DMPs are kept out of public records
  • Credit counselling support

Cons:

  • Can impact credit rating
  • Nominal fee
  • Not all debts can be included
Counsellor smiling at a couple
Happy mature woman looking away

CCS negotiated on my behalf to bring down my interest rates to zero

Excellent way to consolidate, to make payments towards the principle only! CCS negotiated on my behalf to bring down my interest rates to ZERO with all my creditors while I paid off the debt load, that would have taken me 150 years to pay off, accomplished in 4.5 years. Now I am debt free!

Lori

Find out how to get back on track.

Get the help you need. Find the right option that will work for your specific set of circumstances. Feel free to give us a call or chat with us online. We're here to help.

Get the clarity you need.

Speak with a non-profit credit counsellor.

When you’re going through finanical difficulty there are a lot of options to consider. So it can be super helpful to sit down with an knowledgeable credit counsellor who can review all your options with you and help you make a plan to resolve your difficulties. Once you can see your way out, you can regain your peace of mind and follow your plan forward with confidence.

Get Some Help – It’s Free

Get a free appointment to explore your options and get back on track.

Related Topics

Declined for a Loan?

Here are 5 reasons why people are declined for a consolidation loan, and what to do instead.

Mistakes to Avoid

Here are 4 common debt consolidation mistakes, how to avoid them, and where to get help.

Debt Management Program

You’re not alone if you’re wondering if a DMP is right for you. Here’s what it is and how it works.