Debt Consolidation in Canada
In Canada, a suitable form of debt relief for those with multiple debts may be a debt consolidation. For anyone struggling to pay various debts, it can be an ideal way to consolidate credit in order to lower and simplify your monthly payments.
There are various ways to achieve debt consolidation, from debt consolidation loans to filing a consumer proposal. At Spergel, our team of experienced Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years. You will be assigned a professional to walk you through the various forms of debt consolidation in Canada to help you understand the best option for your circumstances.
What is debt consolidation?
Debt consolidation is the process of condensing multiple separate debts into a single monthly payment. Depending on the way in which you consolidate your debt, it can be possible to gain a lower interest rate, or to wipe your interest rate completely. If you file a consumer proposal, often it is possible to reduce your debts too, typically up to 80%. It is always a good idea to speak to an experienced Licensed Insolvency Trustee who can walk you through your debt consolidation options. In Canada, there are 4 primary ways of achieving debt consolidation:
A debt consolidation loan
A debt consolidation loan is a new loan that you take out to condense multiple existing debts into one monthly payment. It is essentially refinancing in order to simplify paying off various outstanding debts. To secure a debt consolidation loan, you must have a steady source of income, and be able to make your payments inclusive of interest. Debt consolidation loans can help you to budget, and often have a lower interest rate than other debts. It is also possible to spread them across a longer time period, potentially making your payments more affordable.
A debt management plan
A debt management plan is offered by a credit counselling agency to enable you to consolidate your debts into one manageable monthly payment. This type of plan is intended to help you pay off your debts within three years. The unique element of a debt management plan is that your credit counsellor will attempt to negotiate a lower interest rate with your creditors. Debt management plans can help simplify your debts, while reducing the interest on your payments.
A debt settlement program
A debt settlement program is a negotiation made by a debt settlement company or a debt consultant with your creditors. An informal debt settlement agreement can come with some risks in that you may pay fees for the process only to be referred to a Licensed Insolvency Trustee to file a consumer proposal regardless. A debt settlement program is intended to reduce your debts, although there is no guarantee that it will work. It is typically intended for those with unmanageable debts like credit card debt, payday loans, and taxes.
A consumer proposal is the only legal way to settle your debts, and must be filed through a Licensed Insolvency Trustee. A popular bankruptcy alternative, a consumer proposal works by having your trustee formally negotiate with your creditors to secure a reduced debt. Often considered the safest and cheapest form of debt consolidation, it allows you to keep your assets while protecting you from being contacted by creditors. It is particularly ideal if you are unable to qualify for a debt consolidation loan, and want one affordable monthly interest-free payment.
|Debt consolidation loan||Debt management plan||Debt settlement program||Consumer proposal|
|What is it?||A new loan to condense multiple existing debts into one monthly payment.||A plan provided by a credit counselling agency to consolidate payments and often lower interest rates.||An informal negotiation made by a debt settlement company to try and reduce your debts on your behalf.||A consumer proposal is the only legally backed debt settlement program that negotiates a reduction in your debts.|
If you want to learn more about the different types of debt consolidation, it is a good idea to contact a Licensed Insolvency Trustee to learn more about the best pathway for you and your unique financial circumstances.
Which debts can be included in debt consolidation?
The types of debt you can include in debt consolidation typically include unsecured debts – debts that are not tied to particular assets, like a property or a vehicle. This covers:
- Credit card debt
- Unsecured lines of credit
- Outstanding bills
- Medical bills
- Payday loans
Debt consolidation can make paying back your unsecured debts much more manageable, and often means your payments are spread out across a longer time period.
How is debt consolidation different to bankruptcy?
Debt consolidation takes on a number of forms, and can vary in the way it compares to bankruptcy. Bankruptcy is a serious legal form of debt clearance, whereby a debtor’s non-exempt assets are reassigned to a Licensed Insolvency Trustee in exchange for protection from creditors and a fresh financial start, free from debt. Debt consolidation loans, debt management plans, and debt settlement programs are not legal solutions and do not offer formal creditor protection. A consumer proposal works differently – it is a legal form of debt settlement that enables you to keep your assets while offering creditor protection. Another benefit is its interest-free repayments.
Does debt consolidation affect my credit report?
For debt consolidation loans, as long as you make your monthly payments on time, there will be no negative impact on your credit rating. In fact, if you are able to reduce your interest payments, it is even possible that you could improve your credit report through debt consolidation. When it comes to filing a consumer proposal in Canada, a notice will be applied to your credit report. That said, it will be removed from your credit report three years after completing the proposal, or six years from the date of filing – whichever lands first. Learn more about consumer proposals and your credit.
How do I consolidate my debt?
Use our debt calculator to understand your debt consolidation options, and the cost associated with each. If you are struggling to gain debt relief, you should speak to an experienced Licensed Insolvency Trustee to understand your debt consolidation options. At Spergel, we can help to explain how much debt you are able to consolidate, and how much it will cost you to do so over time. It may be that a consumer proposal offers you everything you need, and our trustees have over thirty years’ experience in helping Canadians begin fresh financial futures.
Discovering All of Your Options
Marcus was looking for a debt consolidation loan. He did not think he needed to file for bankruptcy, so he had avoided speaking with a Licensed Insolvency Trustee. He was going to sign on with his bank to consolidate 3 of his 5 debts for a reduced interest rate over the next 36 months.
However, the consolidation payment was too high, and he would have to give up his car to maintain it. He called a Trustee who laid out all his options and he chose a consumer proposal instead. This meant he could keep his car and could afford his repayment plan.
Debt Help Learning Centre
If you’re just starting to explore your options, visit our learning centre to learn from our articles and resources to start on your path to debt freedom, and when you’re ready, our trustees are always available to listen.