How to get debt consolidation help for bad credit

Posted on 12 August 2023

Written by Alan Spergel

Juggling multiple debts while carrying a credit score that may be lower than you would like can be extremely stressful. Thankfully, there are a number of ways that Canadians who may be struggling with a bad credit score can try to regain control over their finances. One option that works for many Canadians is a debt consolidation loan. Debt consolidation loans are a great way of combining multiple debts, simplifying your payments, and reducing your interest rate. Even if you need support in rebuilding your credit score, it is possible to secure a debt consolidation loan. In this article, we explain how to gain debt consolidation help for bad credit in Canada

What is debt consolidation?

Debt consolidation most often comes in the form of a debt consolidation loan. It is a new loan that is taken out with the aim of combining all your various debts into one. This includes any unsecured debts you have like credit card debts, loans, and lines of credit. It simplifies your overall debts, and means you only need to make one payment each month. No longer do you need to juggle multiple creditors and payment due dates. Other advantages of debt consolidation loans include often reducing the overall interest rate you will pay on your debts, and often providing more favourable payment terms like reducing your monthly payments by extending the repayment term. Debt consolidation loans can help you gain debt relief faster, and save money along the way. While having a bad credit score might make securing as debt consolidation loan a little more challenging, there are ways around this.

Why might you be turned down for a debt consolidation loan?

There are a few reasons why lenders may consider you ineligible for a debt consolidation loan. It depends on factors like your financial situation, but here are the primary reasons you may be refused:

  • Poor credit rating
  • Insufficient credit history
  • A recent application for new credit
  • Lack of collateral, like assets or home equity
  • Too much debt
  • Insufficient income

If you have been refused a debt consolidation loan and are in urgent need of funds, you might resort to payday loans but this should be avoided. There are plenty of other options for clearing your debt in a less harmful manner. At Spergel, we are here to help you.

How to get debt consolidation help for bad credit

At Spergel, we recommend gaining debt consolidation help for bad credit in a few steps:

Review your financial circumstances

Before committing to a debt consolidation loan, you should first review your financial circumstances. Check the total amount of debt that you have, the associated interest rates for each, the amount of monthly payment you need to make, and any late fees where relevant. Carrying out this review will help you to fully understand the scale of your financial difficulties, and help you to determine whether or not a debt consolidation loan is the right pathway to debt relief for you.

See if you are eligible for a debt consolidation loan

While offering the best way to reduce the interest rate on your loan, you first need to make sure you meet the eligibility criteria. A simple way to do this is to look at the debt consolidation loan products on the market, and speak to different lenders and financial institutions for a loan that meets your needs. At Spergel, our Licensed Insolvency Trustees can help. After all, you may want to compare the varying interest rates, and even assess other options for debt relief outside of debt consolidation loans. As the only professionals in Canada legally able to file all forms of debt relief, Licensed Insolvency Trustees are well placed to advise you based on your unique financial circumstances. Shopping around will help you to guarantee that you find the best interest rate and repayment terms for your budget and financial goals. Using loan comparison websites online can help you to gain a quick comparison on a range of loans. This will help to save you time, and can also demonstrate specialized lenders that may be open to lending to Canadians with a poor credit score.

Compare the costs of debt consolidation loans

Being approved to take out a debt consolidation loan does not necessarily mean it is the best debt relief option for you. It should meet a few key criteria:

  • It should be sufficient enough to pay off all your existing debts
  • It should reduce the amount of interest you pay on your debts
  • It should offer an affordable monthly repayment figure that is reasonable for your budget

Ultimately, you should make sure it covers your debts and has a lower interest rate.

Increase your chances of being approved for a loan

While securing a debt consolidation loan with bad credit can be difficult, it is not out of the question. There are a few things you can do to try and increase your chances of being approved:

  • Find a cosigner for your loan, be it a friend or family member
  • Secure your loan with home equity where applicable

You should note that both of these options carry risks, and so you should make sure you only use the debt consolidation loan for paying off the debts you have, close any other credit accounts, and do not apply for further credit until your current debts are paid off. You should also establish a plan for your repayments so that you know exactly when you will become debt free. You should speak to a reputable Licensed Insolvency Trustee if you are unsure of how to become debt free – we can help you to create a budget from scratch.

Consider alternative forms of debt relief

If you are struggling to secure a debt consolidation loan due to bad credit, you may want to explore alternative options for debt relief. Here are a few popular alternatives in Canada:

  • A secured loan. Secured loans require collateral as a security deposit for lenders. This might be a vehicle, or a property, in order to increase your chances of having a loan approved. It is important to note that failing to make your monthly payments could lead to the seizure of your collateral.
  • Borrowing from friends or family. Although not always possible, being honest with your family and friends about your financial challenges could help with a resolution. They may be willing to lend you the funds you need to consolidate your debt. If you choose this option, you need to be very clear on your repayment terms to avoid burning any bridges.
  • Filing a consumer proposal. A consumer proposal is a legal debt settlement that can reduce your debt by up to 80%. It is the process of suggesting an affordable monthly payment figure to your creditors. You will work with a Licensed Insolvency Trustee to negotiate this figure with your creditors. If accepted, you will only be committed to making your manageable monthly payments for a period of up to five years. Key advantages of a consumer proposal include keeping your assets and preventing creditors from contacting you. At Spergel, we have a 99% acceptance rate on any consumer proposals we file.
  • Filing bankruptcy. Bankruptcy is the legal process of assigning any non-exempt assets you may have over to your Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. It is the best way to gain a fresh financial future in Canada. Although many Canadians think that a bankruptcy means you lose everything, it is not the case – you can keep a property and a vehicle up to a certain threshold. At Spergel, we have been helping Canadians file bankruptcy for over thirty years. Unlike other bankruptcy firms, you are assigned your very own Licensed Insolvency Trustee to walk you through the entire debt relief person, instead of being passed from person to person.

If you have bad credit, you may also need support in rebuilding your credit score. If you want to know how to get debt consolidation help for bad credit, book a free consultation with Spergel. Our Licensed Insolvency Trustees are here to help you. We will review your financial circumstances and share the best form of debt relief for you and your circumstances. Reach out today – you owe it to yourself.

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Alan Spergel

Alan Spergel

Alan Spergel is the founder and President of Spergel. A leader in our industry, he is also a former chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and has served on Canada's Superintendent of Bankruptcy Management Board. He actively supports multiple charities, ensuring that Spergel gives back to our communities and has recently been appointed as Chairman of the Board of the Humber River Hospital Foundation. Outside of the boardroom, you can find Alan playing golf, tennis, or skiing and enjoying quality time with his grandchildren.

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