Created By
Credit Canada
If you’re having difficulty repaying multiple loans and credit card balances, consolidating the debts can help. Here are six effective strategies.
With the cost of living rising in Canada, we’re seeing more people relying on credit cards to make ends meet. At the end of 2022, Canadians topped $100 billion in credit card debt for the first time—a year-over-year increase of 15.3%, according to Equifax. Credit card debt is expensive, with annual interest rates around 20% to 24%, and it can grow quickly if you carry a balance. In this guide, we’ll share six debt consolidation strategies and the pros and cons to consider.
Managing multiple types of debt can be overwhelming and stressful. Debt consolidation can help you simplify it by combining two or more debts into a single monthly payment.
You have many options for consolidating debt in Canada, which we’ll explore below. The best ones for you will depend on the type of debt you have: secured or unsecured.
These are the most common debt consolidation methods. As you’ll see, some of them are only available to people with unsecured debt.
The debt consolidation options available to you depend on several factors, including your assets, types of debt, credit score, level of income and expenses. Generally, if you find that your debt (excluding a mortgage or rent) exceeds 20% of your income, then you may find it helpful to receive professional advice from a non-profit credit counsellor to better manage your debt.
When asked about who would benefit the most from a debt consolidation program, credit counsellor Randolph Taylor says that it’s for “those who have debt that they’re having difficulty paying down.” He adds: “If they find themselves in a place where they’re not able to address the debt as aggressively as they’d like to, a DCP is certainly an option to think seriously about.”
People from all backgrounds with various income levels and professions can benefit from talking to a certified non-profit credit counsellor. A counsellor will assess your financial situation and determine what options are available to you. Rest assured, they will keep everything confidential and provide a judgment-free zone.
There are many benefits that come with a non-profit credit counselling agency. They provide services including one-to-one counselling, debt consolidation programs, and educational seminars and workshops.
Be sure to do your research and find an agency that has a good reputation based on client testimonials or online reviews. Check for industry qualifications, such as being an accredited member of Credit Counselling Canada, and avoid any agency that isn’t up front about its fees.
There are no upfront fees for non-profit credit counselling—they provide counselling and education services free of charge. For-profit services typically charge a fee.
Both types of credit counselling agencies may charge a fee for creating debt solutions, such as a DCP.
There are many benefits to using a debt consolidation service. These may include:
Enrolling in a DCP has a few drawbacks you should be aware of. Lenders will use codes, R0 to R9 (with R1 being the best rating), to illustrate how and when you make payments. This information will be shared with Canada’s two credit bureaus, Equifax and Transunion, and will appear in your credit report. Being part of a DCP means you’ll receive a rating of R7, which will last until you complete the program. Typically, individuals at this stage already have a hampered credit score. As long as you successfully complete your program, your credit score will improve over time.
Another restriction is that you’ll have to stop using unsecured credit, such as a traditional credit card. Usually, this isn’t an issue, since most individuals enrolling in a DCP have already reached their credit card limit. You should still be able to access a secured credit card. To get approval, you’ll be asked to put in a security deposit as collateral.
No matter your debt situation, you have options to get started on the right path. You can always reach out to a non-profit credit counselling agency that can provide free advice and come up with a debt solution plan that is customized to your needs.
This article was written by Himank Bhatia, a credit counsellor and financial coach with Credit Canada, Canada’s first and longest-standing credit counselling agency. For more than 50 years, Credit Canada has been helping Canadians get out of debt and back into life through financial education and debt resolution. As a national, non-profit organization, Credit Canada has helped thousands become debt-free and achieve financial wellness. If you are struggling with debt, you can contact Credit Canada for free credit counselling services.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
With the average rent in Canada rising more than 9% this year, does it make sense to take out...
Inflation ticks up in August, the U.S. Fed decides not to raise rates, IPOs make a comeback, what the UAW...
How does your credit card debt stack up against the average Canadian’s? Find out as we dive into how...
Want to increase your financial literacy or dig deeper into some financial topics to help you with money decisions?...
With debt servicing costs up significantly over the past year, many Canadians are struggling and need help. Who can...
Apple has launched a new iPhone series with several enticing features. Is it worth upgrading your phone to get...
As a student, it’s good to build a credit history while earning rewards for groceries, flights, movies and more....
Do Canadians really owe $1.84 for every $1 they earn? For some, yes. And for others, even more. Where...
Doing home renovations? Find out if there are any tax incentives that Canadians are able to claim.
Interest rates and inflation—don’t forget an impending recession—can make finances stressful. But keeping a cool head is important. Here’s...