Why was your debt consolidation loan declined?

Lenders typically assess your creditworthiness based on factors like:

• Credit score
• Debt-to-income ratio
• Employment status
• Credit history (missed payments, defaults, or accounts in collections)

According to FICO, the average credit score in Canada is 760 – but most lenders require a score of at least 650 to qualify for a competitive debt consolidation loan. If your score falls below that, or your income isn’t stable, you may be seen as too high a risk. If you’ve been declined for debt consolidation, you’re certainly not alone. In a 2024 survey by Finder Canada, 8.09% of Canadians who applied for a car or personal loan were denied due to an insufficient credit rating. Other common reasons included high existing debt (6.49%) and not meeting income requirements (5.09%). These figures highlight the challenges many Canadians face when seeking financial relief through traditional loans.

Step 1: Take a deep breath – then get the full picture

Getting declined for debt consolidation can be emotional. But before reacting, request a clear explanation from the lender. They are legally required to tell you why your application was denied.

Ask for:

• A copy of the credit report they used
• Specific reasons for the decision
• Whether you can reapply and under what conditions

“Debt consolidation loans can mask the problem. At Spergel, we focus on solving it”, says Graeme Hamilton, Licensed Insolvency Trustee at Spergel. “We help Canadians reduce their debt – not just reshuffle it – with legally binding solutions that actually stop interest, protect assets, and put them back in control.”

Step 2: Review your credit report for errors

Sometimes, loan rejections come down to inaccuracies. Credit bureaus like Equifax Canada and TransUnion encourage Canadians to review their credit reports regularly, as inaccuracies – such as outdated accounts or incorrect balances – can negatively impact credit scores if left unaddressed.

Look for:

• Incorrect personal information
• Paid-off accounts listed as unpaid
• Duplicate debt entries

You can request a free credit report from Equifax Canada or TransUnion Canada once a year.

Step 3: Explore other debt relief options

Debt consolidation loans are just one of many options. If your application was declined, it may be time to explore more reliable, structured ways to regain control of your finances.

Consider:

Credit counselling

A certified counsellor helps you create a budget and may negotiate lower interest rates with creditors, although there is no reduction in the amount of debt owed.

Consumer proposal

A legal, government-regulated process that lets you settle your debt for less than you owe – without losing your assets. Debts are often reduced by up to 80%, you receive legal protection from your creditors, and you can keep your assets.

“Consumer proposals have become a lifeline for many Canadians, especially as household debt hits record highs,” says Graeme. “They’re a smart alternative for those turned down by traditional lenders.”

In fact, according to the Office of the Superintendent of Bankruptcy, over 78% of all formal insolvency filings in Canada are now consumer proposals.

Debt management plan

Offered through non-profit credit counselling agencies, a debt management plan lets you repay your debt in full over time, often with reduced or zero interest.

Step 4: Speak to a Licensed Insolvency Trustee (LIT)

Only a Licensed Insolvency Trustee – like those at Spergel – can legally administer consumer proposals and bankruptcies in Canada. They’re regulated by the federal government, and consultations are free and confidential.

A LIT can help you:

• Assess your full financial picture
• Compare all debt relief options
• Stop collection calls and wage garnishments
• Rebuild your credit post-debt

“It’s not just about eliminating debt – it’s about getting your life back,” adds Graeme. “We don’t just look at numbers. We look at people’s goals, values, and wellbeing.”

Declined for debt consolidation: FAQs

Here are some of the most common questions we receive about being declined for debt consolidation:

Why am I not eligible for a debt consolidation loan?

You might not be eligible for a debt consolidation loan if your credit score is too low, your income is unstable or insufficient, or your debt-to-income ratio is too high, making you a higher risk to lenders. Other common reasons include a history of missed payments, accounts in collections, or recent credit inquiries. Even small red flags in your credit profile can lead to a rejection – especially if you’re already struggling to stay on top of existing debt.

What is the red flag of debt consolidation?

The biggest red flag of debt consolidation is that it can give a false sense of progress without actually solving the underlying problem. While it may lower your monthly payments by extending your loan term, you could end up paying more in interest over time. Also, if you continue to use credit irresponsibly after consolidating, you risk doubling your debt – now with both old and new balances. It’s a warning sign if consolidation feels like a quick fix rather than part of a long-term financial strategy.

What is the lowest credit score to get a consolidation loan?

The minimum credit score required to qualify for a debt consolidation loan in Canada varies by lender, but generally, a score of 650 or higher is preferred. Some lenders may consider applicants with scores as low as 600, though this often comes with higher interest rates and stricter terms. ​It’s important to note that while some lenders may offer loans to individuals with lower credit scores, these loans often come with higher interest rates, which can negate the benefits of consolidating debt. Therefore, it’s crucial to assess whether the terms of such a loan will truly aid in your financial situation.​

Real stories. Real results.

At Spergel, we’ve helped over 100,000 Canadians take back control of their finances. People like Larissa, a part-time teacher and mother of two who was left overwhelmed by debt after a difficult divorce. With the help of a consumer proposal and guidance from a Spergel Licensed Insolvency Trustee, she found financial stability – and peace of mind for her family’s future.

“I didn’t know where to turn. Spergel helped me take back control, one step at a time,” Larissa shared.

Whether it’s rebuilding after a relationship breakdown, recovering from gambling-related debt, or navigating the aftermath of financial infidelity, our team meets every challenge with empathy, strategy, and a plan tailored to your unique story.

You’re not alone – and you have options

Being declined for a debt consolidation loan can be discouraging – but it’s far from the end of the story. Whether you’re looking to protect your assets, stop creditor calls, or just get a clearer picture of your financial future, Spergel is here to help. Book your free consultation today – talk to a Licensed Insolvency Trustee who truly listens – and start building your plan forward.

What to read next

• How does debt consolidation work?
• Debt consolidation vs consumer proposal: which is best?
• Bankruptcy or debt consolidation: which is best for you?
• How to get debt consolidation help for bad credit
• Secured debt vs unsecured debt: what’s the difference?

At Spergel, we’ve helped over one hundred thousand Canadians explore their debt relief options, and many begin with the same question: “can I get a consolidation loan?” Let’s take a closer look at what that really means – and why debt consolidation might not be your best path forward.

What is debt consolidation, exactly?

Debt consolidation is when you take out a new loan to pay off several existing debts. You’re left with just one payment instead of many, ideally at a lower interest rate. But according to Equifax:

“Consolidation does not automatically erase your debt, but it does provide some borrowers with the tools they need to pay back what they owe more effectively.“

Consolidation loans often:

• Require a strong credit score
• Charge high interest rates
• Involve application or set-up fees
• Can be hard to qualify for if you’re already behind on payments

A smarter debt consolidation alternative: consumer proposals explained

A consumer proposal is a government-approved alternative to bankruptcy. It consolidates your debts into one monthly payment – without adding a new loan or any interest. And only Licensed Insolvency Trustees (like Spergel) can file one on your behalf. Here’s how a consumer proposal compares to a debt consolidation loan:

Jennifer’s story: from debt consolidation to debt relief

Jennifer came to us with five maxed-out credit cards and a line of credit. She’d been looking for a debt consolidation loan to simplify her payments – but she was also feeling stuck. Her credit score had taken a hit, and she was barely keeping up with minimum payments.

After speaking with one of our Licensed Insolvency Trustees, Jennifer learned about a different option: a consumer proposal. Unlike a debt consolidation loan, a proposal could:

• Stop the interest immediately
• Reduce her total debt
• Give her legal protection from collections
• And help her become debt-free faster – without adding more credit

Today, Jennifer is paying one manageable amount each month – and she’s on track to be debt-free years sooner than she thought possible.

Does a debt consolidation alternative make more sense?

Let’s ask the question another way:

• Would you rather pay everything back – with interest? OR
• Pay back only part of your debt – with no interest and legal protection?

For many Canadians like Jennifer, a consumer proposal ends up being exactly what they were looking for – they just didn’t know it yet.

Who can benefit from a consumer proposal?

You might be a good fit for a consumer proposal if you:

• Owe more than $10,000 in unsecured debt (like credit cards, payday loans, or lines of credit)
• Are struggling to keep up with minimum payments
• Have missed payments or are being contacted by collection agencies
• Want to avoid bankruptcy and keep your assets

And the best part? There’s no obligation to commit – your first consultation with one of our expert Licensed Insolvency Trustees at Spergel is free.

Debt consolidation alternative: FAQs

Here are some of the most common questions we receive about debt consolidation alternatives:

What is a better option than debt consolidation?

A better option than debt consolidation for many Canadians is a consumer proposal. Unlike a debt consolidation loan – which still requires full repayment with interest – a consumer proposal legally allows you to repay only a portion of your debt, with no added interest, and protects you from collections or wage garnishment. It’s a government-regulated solution, administered by a Licensed Insolvency Trustee, and often provides more meaningful, lasting debt relief.

How can I get out of debt without consolidation?

You can get out of debt without consolidation by exploring other solutions like a consumer proposal, credit counselling, or in some cases, bankruptcy. A consumer proposal is one of the most effective options – it reduces the amount you owe, stops interest, and gives you legal protection from creditors, all without needing to take out a new loan. Speaking with a Licensed Insolvency Trustee is the best first step to find the right option for your situation.

What are alternatives to debt settlement?

Alternatives to debt settlement include a consumer proposal, credit counselling, and bankruptcy. A consumer proposal is often the most effective alternative – it’s legally binding, reduces your total debt, stops interest, and offers protection from creditors, unlike informal debt settlement. Credit counselling may help if your debt is manageable and you just need help lowering interest rates. For more serious financial situations, bankruptcy may be the right path to a fresh start. A Licensed Insolvency Trustee can help you understand which option is best for your needs.

Does debt consolidation ruin your credit score?

Debt consolidation doesn’t necessarily ruin your credit score, but it can have a temporary impact depending on the method you use. If you take out a debt consolidation loan and make consistent payments, your credit may actually improve over time. However, if you’re late or miss payments, it can hurt your score. Other forms of consolidation, like a consumer proposal, will show on your credit report and may lower your score initially – but they also stop interest, reduce your debt, and can help you rebuild your credit faster once completed.

Why trust Spergel?

At Spergel, we’ve been helping Canadians break free from debt for over 35 years. We’re proudly Canadian, and our Licensed Insolvency Trustees are regulated by the federal government – meaning you’re always in safe hands. We believe in real solutions, not pressure tactics. If a consumer proposal isn’t right for you, we’ll help you explore other options. Ultimately, our goal is simple: we don’t put you deeper in debt – we help you break free from it.

Take the next step

Not sure whether debt consolidation or a consumer proposal is right for you? Considering a debt consolidation alternative? Try our free Debt Repayment Calculator to see what your monthly payments could look like with a consumer proposal – or book a free, no-obligation consultation with a Licensed Insolvency Trustee today.

What to read next

• How does debt consolidation work?
• Debt consolidation vs consumer proposal: which is best?
• Effective strategies for dealing with debt stress
• Consumer proposal FAQs
• How to qualify for a consumer proposal

What is bankruptcy?

Bankruptcy is a federally regulated legal process that allows individuals to eliminate most or all of their debts when they can no longer meet their financial obligations. In Canada, filing for bankruptcy involves working with a Licensed Insolvency Trustee (LIT), who will assess your financial situation, file the necessary paperwork, and oversee the process. Bankruptcy provides a fresh financial start by discharging most unsecured debts.

Pros of bankruptcy

There are a number of key advantages of filing bankruptcy in Canada, which can be summarized as follows:

• Debt elimination: most unsecured debts, like credit card debts or personal loans, are discharged.
• Legal protection: bankruptcy stops creditors from pursuing collection efforts or legal actions via a stay of proceedings.
• Fresh start: once discharged, you can begin rebuilding your financial life.
• Affordability: often the cheapest form of debt relief, especially if you have no significant non-exempt assets.
• Personalized support: at Spergel, you’ll have your own dedicated Licensed Insolvency Trustee to guide you through every step of the process.

Cons of bankruptcy

Bankruptcy does have a number of downsides which should be considered before moving forward with the process:

• Credit impact: bankruptcy stays on your credit report for six to seven years after discharge.
• Asset loss: you may need to surrender some assets, though provincial exemptions allow you to keep essential items.
• Costs: trustee fees and surplus income payments may apply.
• Debt exclusions: certain debts, such as secured debts (e.g., mortgages) or child support, cannot be discharged.
• Employment implications: in rare cases, bankruptcy could affect certain professional roles.

According to the Office of the Superintendent of Bankruptcy, over 128,000 Canadians filed for insolvency in 2023, highlighting the widespread financial challenges individuals face. Learn more about bankruptcy laws and processes on the OSB website.

Bankruptcy is typically a last resort for individuals with unmanageable debt and no realistic way to repay it.

What is debt consolidation?

Debt consolidation involves combining multiple debts into a single loan, often with a lower interest rate. This approach simplifies monthly payments and may reduce the overall cost of debt. Debt consolidation is typically pursued through a debt consolidation loan or credit counselling program.

Pros of debt consolidation

Debt consolidation has a number of different advantages, namely condensing multiple different loans into one:

• Simplified payments: combine multiple debts into one manageable monthly payment, reducing the risk of missed payments.
• Lower interest rates: consolidation loans often offer lower interest rates compared to credit cards or payday loans.
• Credit preservation: does not negatively impact your credit score as severely as bankruptcy.
• Asset protection: allows you to retain your assets without surrendering them.

Cons of debt consolidation

There are also some downsides to debt consolidation that should be considered beforehand:

• Qualification requirements: you’ll need good credit or a co-signer to secure the best rates.
• No debt elimination: you remain responsible for repaying the full amount owed.
• Risk of default: missing payments could worsen your financial situation.
• High interest rate: if your credit score is poor, the interest rate on a consolidation loan may still be high.

The Financial Consumer Agency of Canada notes that debt consolidation can simplify payments and reduce interest costs, but it requires careful budgeting to ensure long-term success. Debt consolidation is often best for individuals with manageable debt levels and a steady income.

Bankruptcy or debt consolidation: what are the key differences?

Bankruptcy or debt consolidation: which option is right for you?

The right solution depends on your financial situation:

Choose bankruptcy if:

• Your debt is unmanageable, and you cannot realistically repay it.
• Collection efforts and legal actions are overwhelming you.
• You’re prepared to endure a temporary credit impact for a fresh start.

Choose debt consolidation if:

• Your debt is manageable, and you have a steady income.
• You can make regular payments and qualify for a low-interest loan.
• You want to avoid the long-term credit impact of bankruptcy.

Alternatives to bankruptcy and debt consolidation

If neither bankruptcy nor debt consolidation feels like the right solution, consider these alternatives:

• Consumer proposal: a legal process to negotiate and settle your debt for less than you owe while keeping your assets. At Spergel, we have a 99% acceptance rate for consumer proposals. 
• Debt management program: a repayment plan created by credit counsellors to reduce interest rates and simplify payments.

Expert help from Spergel

Deciding between bankruptcy and debt consolidation isn’t easy, but you don’t have to face it alone. Spergel’s Licensed Insolvency Trustees have been helping Canadians regain financial stability for over 30 years.

We offer free consultations to assess your financial situation and recommend the best solution for your needs. Whether you choose to file for bankruptcy, explore debt consolidation, or pursue alternatives like a consumer proposal, Spergel is here to guide you every step of the way.

One of our clients, Alex, had $90,000 in debt and was struggling to make ends meet. His Licensed Insolvency Trustee negotiated with creditors on his behalf, securing a 75% reduction in his debt to a manageable $22,500. This allowed Alex to regain control of his finances and start rebuilding his life.

If you’re still unsure as to whether to choose bankruptcy or debt consolidation, reach out to Spergel. Our experienced Licensed Insolvency Trustees have been helping Canadians for over thirty years, and we can help you too. Book a free consultation today – you owe it to yourself.

What to read next

• Debt consolidation vs consumer proposal: which is best?
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What is debt consolidation?

Debt consolidation is the process of merging multiple debts into a single, more manageable loan or line of credit. Instead of dealing with numerous creditors and varying interest rates, Canadians can streamline their payments by consolidating their debts. This method aims to simplify the repayment process and potentially lower interest rates and monthly payments.

Are there different types of debt consolidation?

Put simply, there are a few different types of debt consolidation – borrowing and non-borrowing options. The type of debt consolidation best suited to you will depend on your own unique goals and financial requirements.

Debt consolidation loans and borrowing options

Borrowing, bank-based loan solutions for debt consolidation in BC include the following:

• A debt consolidation loan from a lender who provides funds for you to repay your individual debts, condensing the various different balances into a single, new loan that you repay with interest.
• A home equity consolidation loan, where you borrow against your home equity. This is also sometimes referred to as a second mortgage, or refinancing your mortgage.
• A balance transfer from a line of credit, an overdraft, or another credit card with a lower interest rate to repay higher interest debts.

It is important to note that borrowing options for debt consolidation can be challenging in terms of their eligibility criteria. Often, you will need to pledge an asset as loan collateral, like your home or car. In some cases, they may require a co-signer. You might also need a high income or a good credit score to qualify. If you do not qualify for a borrowing option, a non-borrowing alternative might be a better solution as a journey to debt relief.

Non-borrowing debt consolidation options

Not everyone will know that non-borrowing options for debt consolidation in BC exist. You do not always need to take on a new debt in order to consolidate your debts. Options for non-borrowing debt consolidation in BC include the following:

• A consumer proposal – a legal form of debt settlement, a consumer proposal is the process of proposing an affordable percentage of your debt to your creditors. A popular bankruptcy alternative, consumer proposals often allow you to reduce your unsecured debt by up to 80% and you make just one manageable monthly payment. They must be filed by a Licensed Insolvency Trustee – at Spergel, we have a 99% acceptance rate on any consumer proposals we file. Advantages of consumer proposals include protection from creditors, and an end to interest payments. Consumer proposals are the only legal options for debt consolidation in Canada that can include debts including tax debt and student loan debts (over seven years old). A Licensed Insolvency Trustee at Spergel will work with you to review your financial circumstances and create a proposal for your creditors that is affordable.

“I highly recommend the SPERGEL Team! They were very knowledgeable, professional, and helpful in guiding me through the consumer proposal process. The team was attentive to my needs and concerns, answering all my questions and putting my mind at ease about the entire process. They made sure that I understood every step, and they worked tirelessly to ensure that my proposal was approved by my creditors. Thanks to their excellent work, I was able to reduce my debt and finally gain financial stability. I couldn’t have done it without them! So if you’re looking for a trustworthy and reliable consumer proposal company, look no further than SPERGEL!

Date of experience: 02 November 2023.

• A debt management plan – debt management plans are typically created by non-profit credit counselling agencies. Although not legally binding, they can help you to consolidate different types of debt. A debt counsellor or non-profit credit counsellor will review your financial situation and arrange with your creditors a payment plan for your eligible debt. While not guaranteed, they might be able to secure an interest freeze too. Debt management plans are not legally protected, creditors do not need to oblige, and you will need to repay 100% of your debt, plus counsellor fees. Debt management plans have the same consequences on your credit report as a consumer proposal, so it is well worth speaking to a Licensed Insolvency Trustee before you proceed.

What to consider before opting for debt consolidation

Debt consolidation in BC is a practical solution for individuals overwhelmed by multiple debts. By exploring the various debt consolidation options available and considering the associated factors, you can choose the most suitable method to regain financial stability. You should weigh up the pros and cons of each option, seek professional advice from a Licensed Insolvency Trustee, and commit to responsible financial management to achieve long-term debt relief. Here are a few things you should review before you move forward with a form of debt consolidation:

• Interest rate – you should make sure that if you take out a new loan or credit option, it has a lower interest rate than the existing debts you have.
• Fees – you should make sure you clearly understand any fees associated with the debt consolidation process, including closing costs or balance transfer fees.
• Credit score impact – debt consolidation can affect credit scores. Managing payments responsibly can help to improve your credit health.
• Good financial health – when exercising responsible financial habits, debt consolidation can be effective. Avoid taking on new debts while paying off your debt consolidation loan.
• Eligibility – when qualifying for debt consolidation in BC, you will likely need to have a fairly strong credit score and debt to asset ratio if you are looking to secure bank based consolidation. Lenders could also ask for a cosigner to guarantee your loan, or for you to pledge an assets as collateral like home equity or a car.
• Affordability – ensure you can realistically afford your monthly consolidation payments and remember that most debt consolidation options (aside from a consumer proposal) cannot cover all of your debts. If you require a reduction in your debts, a consumer proposal might be the best option for you.

On the contrary, non-borrowing forms of debt consolidation like a consumer proposal do not require you to have a good account standing or credit score in order to be eligible, and you will not need to pledge an asset as collateral.

While many British Columbians struggling with unmanageable debt might think that bankruptcy is their only way to debt relief, this is far from the reality. Debt consolidation in BC is a great way to simplify your debts, and consumer proposals can reduce your debts by up to 80%. At Spergel, our experienced Licensed Insolvency Trustees will review your finances and advice you on the best way to tackle your debts. Reach out today to book your free, no obligation consultation.

What to read next

• How to get debt consolidation help for bad credit
• How does debt consolidation work?
• What is the difference between consumer proposal and debt consolidation?
• Bankruptcy or debt consolidation: which is best for me?
• Debt trap: how to stop the cycle for good

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.

What to read next

• How does debt consolidation work?
• What is the difference between consumer proposal and debt consolidation?
• Bankruptcy or debt consolidation: which is best for me?
• Debt consolidation: all you need to know
• How to fix a bad credit score in Canada

What is debt consolidation?

Debt consolidation is quite simply the process of combining multiple separate debts into one. Usually, you will take out a new loan or line of credit in order to condense the other debts. The concept is that you will find another loan with better repayment terms or a lower interest rate. This will help you to gain debt relief sooner, without having to juggle multiple different payments each month at different interest rates. Debt consolidation is typically used for unsecured debts, or debts that have high interest rates. This makes it a popular choice for credit card debt. You can also consolidate debts including tax debt, personal loans, and payday loans. Debt consolidation loans are not, however, appropriate for secured debts including a car loan or mortgage as they are loans that use collateral as security and cannot be combined.

Why do people choose debt consolidation?

There are a number of reasons why Canadians choose to get debt consolidation loans:

• It simplifies their finances, consolidating multiple debt payments into one singular monthly payment
• It can save them money by reducing the interest rate, provided you can secure a new loan with a lower rate
• It can extend the repayment period you have, meaning your monthly payments are substantially reduced
• It can enable you to repay your debt much faster provided your interest rate drops and your monthly debt repayment remains similar so that more of your repayment can go towards the debt principal instead of the interest

How does debt consolidation work?

There are a few steps to the debt consolidation process:

• Make a list of all the debts you would like to consolidate to establish what you need to borrow.
• Calculate how much money you can put towards your debt consolidation loan repayment each month, to establish the loan term you are likely to need (i.e. 1 year or 2 years)
• Depending on your credit score, the interest rates on debt consolidation loans available to you will vary
• Once you have chosen a product that works for your financial situation, you can apply – but do read carefully over the eligibility criteria to ensure you would qualify
• As soon as you are approved for a debt consolidation loan, the funds will usually be deposited to you within a set period of time
• You then need to make your simplified monthly repayment for the agreed period of time, and you are free to enjoy an easier way of paying off your debts

Can credit card debt be consolidated into one?

Absolutely – many Canadians looking for a debt consolidation loan are looking to combine their credit card balances so that they are more manageable. Many individuals find themselves with multiple credit cards, often at high annual interest rates (AIR) of almost 20%. If you can secure a debt consolidation loan with an AIR of 8%, this could save you a lot of money in the long run. Debt consolidation loans should offer more favourable terms than the debts you currently have. You could secure, for instance, a lower fixed monthly payment to help you repay your credit card debts more quickly.

How are the interest rates of debt consolidation loans determined?

Debt consolidation loans have interest rates that are determined by two key factors – your credit score and the security collateral you can provide for the loan. Your credit score signals how easily you will be able to repay a debt in like with your loan agreement. The higher your credit score, the more confidence a lender can have that they will receive their repayment. Collateral for a debt consolidation loan can be used as security in case you struggle to make your repayments. This will usually take the form of something that can be converted into money quickly, like a property or vehicle. The better the security deposit or collateral that you can offer for the loan, the more favourable the interest rate you will receive.

Is a debt consolidation loan a good idea?

Many Canadians want to know if a debt consolidation loan is a good idea before taking one out. It is very dependent on your unique financial circumstances, but there are some key considerations to make before you go ahead and take one out. It can be thought that debt consolidation loans can promote poor financial habits. When you consolidate your debts, it can make you feel much better about your finances for taking action. It has a feel good effect when you can reduce the interest on your debt and simplify your debts into a single monthly payment. The issue is that many Canadians need debt consolidation loans because they have been spending beyond their means. Instead of addressing the issue at source, financial situations can deteriorate by continuing to spend. This can continue to impact credit scores and the ability to secure new credit in the future. Thankfully, there are alternatives to debt consolidation loans that may work better for you and your circumstances.

What are the alternatives to a debt consolidation loan?

In Canada, Licensed Insolvency Trustees are the only professionals in the country legally able to file all forms of debt relief. At Spergel, our expert team of Licensed Insolvency Trustees have been helping Canadians to reduce or eliminate their debt entirely for over thirty years. Debt consolidation loans are not the solution for all Canadians, so we support with a number of alternative debt relief options that might be right for you and your financial circumstances:

Filing a consumer proposal

A consumer proposal is a legal form of debt settlement, administrated with the support of a Licensed Insolvency Trustee. A popular bankruptcy alternative, consumer proposals can reduce your unsecured debts by up to 80%. It is the process of suggesting an affordable monthly repayment figure to your creditors, which your Licensed Insolvency Trustee will help you to negotiate. If accepted, you will only need to commit to making the manageable monthly payment for a period of up to five years. Consumer proposals have a number of advantages, including the ability to keep your assets and protection from creditors via a stay of proceedings. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, meaning you have a 99% chance of reducing your unsecured debts by up to 80%.

Filing bankruptcy

Bankruptcy is the process of assigning any non-exempt assets you may have over to a Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. These assets are then sold, with any proceeds going towards your creditors as part of their repayment of your debts. Bankruptcy is the best pathway to a fresh financial future, and has advantages including full protection from creditors. At Spergel, unlike other bankruptcy firms, you are assigned your very own Licensed Insolvency Trustee to walk you through the entire debt relief journey, instead of being passed from person to person.

Hopefully now you understand ‘how does debt consolidation work?’ At Spergel, we can help you to understand whether or not a debt consolidation loan might be right for you, or whether an alternative form of debt relief might be more effective. Book a free consultation with Spergel – we approach each individual with compassion and understanding, and are keen to help. Reach out today – you owe it to yourself.

What to read next

• What is the difference between consumer proposal and debt consolidation?
• Bankruptcy or debt consolidation: which is best for me?
• How to get rid of credit card debt
• Canadian debt collection laws: what can debt collection agencies do?
• Household debt in Canada: what to do if yours is high

When is credit card consolidation a good idea?

There are a number of reasons to consider credit card consolidation:

• It is increasingly difficult to stay on top of your monthly credit card payments, particularly with a rising cost of living
• High interest rates on top of credit cards are costing you more
• You are living paycheque to paycheque and paying off your credit cards with other forms of debt
• You cannot stop on top of all of your debts, leading to missing payments
• You are reverting to payday loans to help with debt problems or payments you cannot afford

These are a few examples of instances where a credit card consolidation may help to simplify and reduce your payments.

What is credit card consolidation?

Credit card consolidation is the process of taking out a new loan in order to condense multiple credit card debts into one. The funds from the new loan pay off the other separate credit card debts which are then closed, and you are left with just one payment to make each month. Debt consolidation loans typically have a lower interest rate than the other individual credit card debts you have will charge you. You might even find more preferable terms and conditions, like longer repayment periods to lower each monthly payment you make. It simplifies your finances to make debts feel less overwhelming. Before you take out any credit card consolidation loan, you must be sure you can budget effectively to pay off your loan, otherwise it could actually end up increasing your debt. Equally, if you are behind on your credit card payments, it could be difficult to secure a debt consolidation loan – in this scenario, you may want to consider a debt relief alternative like a consumer proposal.

What are the pros and cons of consolidation?

Credit card consolidation comes with a range of pros and cons. Here are the pros:

• A single, simplified monthly payment
• Often a more favourable interest rate, or elimination of an interest rate
• Sometimes payments can be reduced and spread across a longer period of time

Here are the cons:

• You need to qualify for a new debt consolidation loan
• If you cannot budget for your payments effectively, your debt could become worse
• Debt consolidation loans often require collateral, which can put huge assets like your home at risk

Types of credit card consolidation

In Canada, there are a few different types of credit card consolidation. Each is suited to different individuals depending on their financial circumstances. Here is a breakdown of the most popular types:

Credit card balance transfer

It is possible to take out a new credit card and consolidate any existing credit card debts into the new one. Advantages of this include benefiting from promotions that come with credit cards, although these can come with terms and conditions to be aware of. Credit card balance transfers can be flexible too – you can tackle your credit card debt, but if you have a financially challenging month you could always revert to simply making your monthly payment. One thing to be aware of with this method is that even if a new credit card has a low interest rate when consolidating existing debts, the low rate may not be applicable to any new purchases. You will also need to commit to being able to make each of your monthly payments, otherwise you could find yourself facing fees and mounting debt.

Advantages of a credit card balance transfer:

• Flexible payments
• Initial low interest rate

Disadvantages of a credit card balance transfer:

• You must be eligible for a new credit card
• It could elongate the time you are in debt
• Promotional interest rates might garner your interest but they can expire quickly
• Subsequent interest rates can be very high

Home equity line of credit

A second mortgage or a home equity loan is when you borrow against any equity you have in your home and use it to pay off debt. Before you increase your mortgage, take out a second mortgage with a higher interest rate, or apply for a home equity loan, you should speak to a Licensed Insolvency Trustee. As the only professionals in Canada legally able to file all forms of debt relief, they can share any other options available to you, which may be able to reduce or eliminate your debt instead of adding to it.

Advantages of a home equity line of credit:

• Low interest rate if taken out via a financial institution or credit union
• Flexible payment scheduling

Disadvantages of a home equity line of credit:

• High fees and high interest rate if taken out via a subprime lender
• Requires sufficient equity in your property

Informal debt settlement

When you are struggling financially and you do not think it will get better in the next few years, you may want to consider a settlement if you have a lump sum of cash available. A debt settlement is an arrangement you negotiate with your creditors to pay back less than the full amount you owe, often via a one off lump sum. Because you are paying upfront, creditors will sometimes agree to eliminate the remaining credit card debt. This means you can pay less than the full amount owed and become free from the debt. It is worth noting that not all creditors will accept this approach, and you would need to have the cash ready immediately. An informal debt settlement is also not guaranteed, so you should try to get any agreement in writing where possible. Even then, a creditor is not tied to it legally.

Advantages of an informal debt settlement:

• Potential to repay less than you owe
• If creditors agree, you can gain instant debt relief

Disadvantages of an informal debt settlement:

• Creditors need to agree to a negotiation
• No formal agreement, meaning creditors are not bound
• Lump sum required before an offer is made
• Credit rating can be affected for years

Consumer proposal

A consumer proposal is a legal form of debt settlement, which can reduce credit card debt by up to 80%. Filed through a Licensed Insolvency Trustee, filing a consumer proposal is the process of putting forward an affordable monthly payment figure to your creditors. Your Licensed Insolvency Trustee will help to negotiate with your creditors on your behalf. A popular bankruptcy alternative, if your creditors accept your proposal, you only need to repay the agreed amount for a period of up to five years. Other advantages of a consumer proposal include receiving full protection from your creditors, and relief from the stresses associated with overwhelming credit card debt. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, which means you have a 99% chance of reducing your debts by up to 80%.

Advantages of a consumer proposal:

• Interest and penalties are frozen
• Reduction in your credit card debt by up to 80%
• Protection from your creditors via a stay of proceedings
• Collection on student loan debts paused
• Avoids bankruptcy

Disadvantages of a consumer proposal:

• Consumer proposals are a permanent public record
• A negative impact on your credit report for up to around 8 years
• If you miss more than 3 payments, your consumer proposal is finished and you cannot file another

If you are unsure of which form of credit card consolidation may be best for you, book a free consultation with a Licensed Insolvency Trustee at Spergel. It can feel overwhelming choosing a form of debt consolidation, but we can guide you through the process by reviewing your financial situation and advising you on the best recommendation for your circumstances. Reach out today – you owe it to yourself.

What are the options for student loan debt consolidation?

Debt consolidation is the process of condensing multiple separate debts into one. Generally speaking, it has a number of advantages. Firstly, it simplifies your debts to allow you to make one monthly payment. Additionally, it often reduces your overall interest payments, bringing down your monthly payments in many cases. The problem is that student loan debt consolidation brings its own challenges that may affect your options. This is mostly around the type of student loan that you have. Is your student loan debt federal, provincial, or private? For private student loans, there can be some additional rules that can affect your consolidation options. If you are wondering how to consolidate student loans, there are typically a few ways to do so:

Debt consolidation loans

A debt consolidation loan is a new loan borrowed from a bank or financial institution used to pay off your student debts. Before agreeing to any debt consolidation loan, you should ensure that you are getting a lower interest rate than what you are currently paying across your debts. In order to qualify for a debt consolidation loan, you need to have a good credit score, and be able to use assets as collateral against your loan. This can be difficult as you are a student after all. There are a few other setbacks – many financial institutions will not lend money to consolidate government funded student loans. You will also lose tax deductions as the interest on your student loan is tax deductible. If you have a poor credit score, you can expect to pay high interest rates, which may be more than you can actually afford.

Debt management plan

An alternative to a debt consolidation loan is a debt management plan. These are typically taken out via credit counselling agencies. A credit counselling agency will work with you to collect on behalf of your financial institution. That said, debt management plans do not work for all debts. The government does not tend to deal with credit counsellors, which can make things difficult for those with government student loans. You should look to the government Repayment Assistance Plan in this instance for income based relief. A debt management plan is better placed for consolidating private student loans like credit card debts, outstanding bills, and bank loans. Even with a debt management plan, there is no reduction in the amount you pay – you will still need to repay 100% of your debt. If you need a reduction in your overall debt, a consumer proposal may be a better student loan debt relief option for you.

Consumer proposal

A consumer proposal is a legal form of debt settlement that can reduce your debt by up to 80%. It is the process of proposing an affordable monthly repayment amount, and your Licensed Insolvency Trustee will negotiate with your creditors on your behalf. Creditors are more likely to accept a consumer proposal over a bankruptcy, as in most cases they will receive more in the way of repayment. Consumer proposal offer debt relief and protection from your creditors via a stay of proceedings. For a student loan debt to be included in a consumer proposal, you must have finished school at least seven years ago. Even if you finished more recently, filing a consumer proposal on your other unsecured debts can make your student loan payments more manageable.

If you want to learn more about how to consolidate student loans, book a free consultation with the experienced Licensed Insolvency Trustees at Spergel. We have been helping Canadians gain debt relief on student loan debts for over thirty years, and we are here to help you too. We will review your financial circumstances and recommend the best path of debt relief for you. You owe it to yourself.