Are you stressed and struggling to keep up with all of your debt payments? Would consolidating your payments into one monthly payment make it easier? There are many different types of debt consolidation options to choose from in Canada. Below we provide a brief overview of each option, and then we let you know where you can find free, expert advice to help you with your situation. To get started, we should get on the same page in regards to what a debt consolidation loan is.
A debt consolidation loan is when someone borrows money and then uses that money to pay off other debts. You may want to apply for a consolidation loan if you’re struggling to make your minimum monthly payments on your credit cards, line of credit or overdraft. Or, it might make sense to consolidate high interest rate debts into one monthly payment with a lower interest rate. However, if your credit rating has gone down because of your debts, you may have difficulty applying for a loan. In this case one of our Credit Counsellors can help you look at other debt consolidation options.
There are many reasons why people want to consolidate their debts:
If you’re stressed and having trouble paying your debts, get help sooner than later. You’ll not only have more options and solutions available to you, it will ease your stress and you may even sleep better (we find this is true with more than 60% of the people that we help).
In Canada, there are at least 8 different ways people consolidate their debts. You may have only ever heard of half of them. These different methods have been developed to address a variety of financial situations.
Home equity is what’s left when you subtract what you owe on your house from what it’s worth. Depending on how much equity you have in your home, you might be able to borrow against it and use the loan to pay off debt. There are mortgage rules in Canada about using your home equity to consolidate debt. Before going down this path and possibly paying really high interest rates, talk to one of our experienced Credit Counsellors. There are likely other options you may want to consider as well.
It can be tempting to use your line of credit or bank account overdraft to consolidate your debts into one monthly payment. However, by doing this, you run the risk of never paying your debt off.
Rather than using credit that never really has to be paid off to consolidate your debts, our experienced Credit Counsellors will help you look at all of your options. Having a loan or repayment plan with one monthly payment that fits your budget will let you pay all of your debts off and get you back on track with your finances.
On the surface, this can appear to be a sensible option. However, all to often, low interest cards can be more of a trap that keeps people in debt rather than a helpful tool to get them out. This is because they don't have a mechanism to ensure they're paid off in a reasonable time frame.
Before you apply for a low rate credit card to consolidate other debts, speak with one of our Credit Counsellors and look at other debt consolidation options. Talking with them is always free and confidential.
To “settle your debts” means to offer your creditors a one-time lump sum payment to pay off part of what you owe them. In return, they will write off what you aren’t able to pay back. While this option may seem attractive, the written off debts impact your credit for a number of years. If this option interests you, speak with one of our Debt Settlement Specialists to find out if it would be a good fit for your situation.
A legal type of debt consolidation is available in Canada through a Bankruptcy Trustee. It allows you to repay less than you owe over a number of years. Depending on the type of debts you have and your overall circumstances, filing a Consumer Proposal may be a good option for you. However, since it's a legal process, it can have long-term ramifications. Speak with one of our qualified Credit Counsellors to determine if this option may be appropriate for you.
A Debt Management Program (DMP) is a way of consolidating your unsecured debts without borrowing more money. Interest rates are drastically lowered or waived, and it allows you to get out of debt by making one monthly payment that fits your budget. To find out if a DMP is a good debt consolidation option for you, speak with one of our Credit Counsellors. They'd be happy to look at your situation with you and see what your options look like.
If you live in Alberta, you could also consider consolidating using the Orderly Payment of Debts program. Eligibility for this program depends on your financial situation and involves a legal process. However, it does consolidate unsecured debts into one affordable payment, provides legal protection from creditors, and reduces all interest rates to 5%. If you live in Alberta, speak with one of our Credit Counsellors to see if this would be a viable option for you.
No one likes to see their friends or family struggling with debt. However, borrowing money from a family member or friend to repay your debts can make it difficult later on if you have trouble paying them back. Rather than jeopardizing a relationship, speak with one of our experienced Credit Counsellors to get the help you need to deal with your debts. They'll help you put together a realistic budget and a plan to get out of debt in a reasonable time frame.
As you can see, there are many debt consolidations options in Canada. Choosing the one that’s best for you takes time. Speak with one of our qualified Credit Counsellors to get expert debt consolidation advice and to look at all of your options. The sooner you seek help, the more options you’ll have available to you.
As adults, we're expected to know how to manage our money, but who teaches us? Rather than just trying to figure things out for yourself, join one of our friendly, interactive financial or budgeting workshops. We’ll talk about how to create a realistic, personal budget that works, how a spending plan can help you avoid debt problems, how to use a credit card but not end up in debt, and learn many more helpful money management tips. The 'school of hard knocks' teaches some tough lessons. Ask us about how to register for one of our free workshops and learn how to avoid some of life’s financial bumps and bruises.