Understand the landscape of debt consolidation in Canada including who provides debt consolidation services and what the advantages and disadvantages are.

1. Understanding Debt
Consolidation in
Canada
Is a debt consolidation loan right for you?

2. Table of Contents
What is Debt Consolidation?
How Do I Get a Debt Consolidation Loan?
Advantages of Debt Consolidation Loans
Disadvantages of Debt Consolidation Loans
Alternatives to Debt Consolidation
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8
9
11
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3. What is Debt Consolidation?
If you’re struggling with multiple debt payments,
debt consolidation can help you combine your
debt payments into one single payment. Not only
does it help with debt management, but it can
also save you money on interest.
A debt consolidation loan is a personal loan that
allows you to consolidate your credit card debt,
line of credit, car loan, and similar debt, into a
single loan. This way, you only have one monthly
payment instead of multiple.
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4. How Do I Get a Debt
Consolidation Loan?
Several forms of debt consolidation are available
in Canada. The logical place to start is with a
debt consolidation loan through your financial
institution.
You probably already deal with a bank: you
deposit your paycheque at a bank, and you pay
your bills through your bank account, so your
bank is already familiar with you, your income,
and your spending. Since they already know
you, they are more likely to give you a debt
consolidation loan.
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5. How Do I Get a Debt
Consolidation Loan?
Your next option, if you own a house, is to
try a different type of debt consolidation
lender, such as a mortgage broker.
A loan secured by a house is one of least
expensive methods of borrowing possible;
so, if you qualify, this is a good option.
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6. How Do I Get a Debt
Consolidation Loan?
If you don’t qualify for a mortgage, you
could try a finance company.
However, finance companies charge very
high interest rates, generally at least three
times more than what a bank would charge.
Only borrow from a finance company if you
have no other option AND if you can afford
the payments AND if all your debts will be
eliminated in a reasonable period of time.
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7. How Do I Get a Debt
Consolidation Loan?
There are also debt consolidation or credit
counselling agencies in Canada that offer to
help you consolidate your debts into one, easy
payment. In effect, what they are offering is a
debt management program or debt settlement.
These debt consolidation companies will not
give you a new loan, rather they will help you
negotiate a plan with your creditors.
Before you choose any of these options,
consider all of your alternatives which we
discuss on page 11.
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8. Advantages of Debt
Consolidation Loans
Advantages of these loans include:
• Easier debt management: only one monthly payment,
making it easier for you to keep up with your debt
payments.
• The possibility of a lower interest rate, reducing your
total debt repayment costs so you can eliminate your
credit card debt faster.
• Lower monthly payments when your interest costs are
reduced and the term of the debt is extended.
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9. Disadvantages of Debt
Consolidation Loans
• Not all debts can be consolidated. Credit card debt, utility bills,
car loans and other personal loans can be consolidated, but
mortgages cannot.
• To qualify for a debt consolidation loan, you usually need to
have fairly good credit and sufficient income to be able to pay
the loan.
• When you apply, your bank may ask to see:
• Your monthly budget to determine if you can meet your loan payments.
• Your most recent tax returns and pay stubs as proof of your income.
• Your most recent loan statements showing exactly how much you owe.
• Your credit report and any other debts and notes about your credit
history.
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10. Disadvantages of Debt
Consolidation Loans
• Depending on your credit, you may also need a co-
signor or collateral, such as a car or a house. The bank
may ask for an appraisal of the asset you will be using
as security.
• Unlike other debt relief options, you have no protection
from your creditors, collection calls or wage
garnishment.
• You will not reduce the overall total of your debt. You
risk building up more debt if you can’t make your
payments or if you continue to use your credit cards.
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11. Alternatives to Debt
Consolidation Loans
If your debt is too large for a consolidation loan to work, you may
want to consider other programs that allow you to consolidate
your debt, have one easy monthly payment, and help you get
out of debt sooner. You have two options for doing this:
A debt management plan allows you to repay your debts in full,
but can often have interest costs and penalties forgiven.
A consumer proposal allows you to pay back a portion of what
you owe while being protected against legal action from your
unsecured creditors.
Both programs allow you to consolidate your debt into one,
lower monthly payment.
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12. Not sure which option
to choose?
www.moneyproblems.ca
Click here to find a local debt expert
who can help.