What Is Debt Consolidation?
Debt consolidation means combining multiple debts — credit cards, payday loans, personal loans — into a single loan with one monthly payment. The goal is typically to:
- Reduce your overall interest rate
- Simplify multiple payments into one
- Extend your repayment term to lower monthly payments
When Does Debt Consolidation Make Sense?
Consolidation is most beneficial when:
- You have multiple high-interest debts (credit cards at 19.99%+)
- You can qualify for a consolidation loan at a lower rate (10-14%)
- You have a stable income and can commit to the new payment
Example: How Much Can You Save?
Suppose you have $15,000 in credit card debt at 19.99% APR, paying $375/month. A consolidation loan at 11% APR would reduce your monthly payment and save you thousands in interest.
Debt Consolidation Options in Canada
- Personal loan – TD, RBC, Scotiabank, Fairstone
- Home equity loan/HELOC – Lowest rates but requires home equity
- Balance transfer credit card – 0% promo rate for 6-12 months
- Debt management plan – Through a non-profit credit counsellor
The Risks of Debt Consolidation
Debt consolidation is not a cure-all. Be aware of:
- Origination fees on the new loan
- Longer terms mean more total interest even at lower rates
- Risk of accumulating new debt on paid-off credit cards