Debt Consolidation FAQs

Debt consolidation is a form of debt refinancing that helps you reduce multiple bills by consolidating it into one payment. This helps you reduce multiple aspects of your debt: the number of bills, the number of payments you have to make on a monthly basis, as well as the interest rate you are likely to be charged.

Debt consolidation is mostly used for different types of unsecured debt.

While rare, you can sometimes add car loan debt to a debt consolidation loan. For other types of secured debt, you can add in any financial loss incurred on selling your collateral, to your debt consolidation loan.

However, it usually doesn’t make financial sense to consolidate secured debt, as the interest rates for secured borrowing tend to be comparatively lower to begin with. Make sure to check what works for your specific situation, and whether the overall consolidated payment plan and repercussions are reasonable for you.

Debt consolidation works by combining your debt into one monthly payment. The main benefit of debt consolidation is that it allows you to get out of debt sooner while paying less overall interest. You would also be able to maintain, or possibly improve, your credit score in the process.

The most common method of debt consolidation is by taking out a debt consolidation loan.

1. The primary benefit of debt consolidation is that it helps you pay off your debt quicker, while maintaining your credit score, or even improving it. There are a few different ways to approach debt consolidation:
2. Debt consolidation loan – The most common method of consolidation. It involves taking out a lower interest loan to pay off higher interest debts. You need to have a good to excellent credit score to qualify.
3. Credit card balance transfer – Balance transfer cards offer a lower rate of interest if you switch your balance over. They may also have a 0% introductory interest rate. Typically, this method only makes sense if you can pay it off within this introductory period (usually 6 to 18 months).
4. Line of Credit – An open line of credit that you can use to pay off your debts. LOCs usually have a lower interest rate, however, monthly payments only cover the interest, not the principal. You would need to pay more than the minimum to repay your debt.
5. HELOC – A home equity line of credit is a secured type of credit, which means your home equity is used as collateral. While this option helps you secure a lower interest rate even without a good credit score, missed payments may put your home at risk of foreclosure.
6. Debt management plans – While this is not a loan, it is a form of consolidation. Instead of consolidating your debt, a consolidated repayment plan is set up through a credit counselling agency. There would be a note on your credit report for two years showing you paid your debt on your adjusted payment schedule. Since you’re paying back the full amount, it does not negatively affect your credit score.

If you have multiple bills and are able to afford your monthly payments on a timely basis, with a good credit score and regular income, you are likely to meet the requirements to qualify for debt consolidation.

If you are eligible, you are also likely to qualify for lower interest rates, which will further reduce the money you owe and the number of payments you may have to make.

With debt consolidation, you are paying off multiple debts with your new loan. As you’re paying off these debts in full, it reflects positively on your credit score. All you need to do is keep up with the single monthly payment on your new loan. Regular payments will also have a positive effect on your credit score.

The only time there is a mildly negative effect on your credit score is during the loan application. This is because any time you apply for credit with any lender, there is a hard inquiry on your credit report. This will affect your credit score by a few points and will be gone in a few months.

Overall, debt consolidation with timely payments will reflect positively on your credit score

Yes, in some cases, debt consolidation can help with car loans. Mostly, debt consolidation is used for unsecured debt, like credit cards, unsecured personal loans, lines of credit, and more. A car loan is considered a form of secured debt, as there is collateral associated with it, i.e. your car.

In most cases, adding a secured loan to debt consolidation doesn’t help much in terms of an interest rate reduction. However, it can be possible if it is a requirement for you to be debt-free. Even for other types of secured debt, if you incur a financial loss on selling the collateral associated with it, you can also include that in your debt consolidation loan.

It is recommended to stop using your credit cards after debt consolidation. If you find yourself in a situation where you must, make sure you pay it off in full before the due date.

Any new debt you take on after the consolidation is considered separate, and is not part of the consolidation loan. You would be back to paying high interest rates again and may end up carrying even more debt.

If you are able to manage payments and meet the eligibility criteria, debt consolidation may be the right fit for you. If you have a good credit score and are able to qualify for a lower interest rate with manageable monthly payments, debt consolidation is likely to be right for you.

In some cases, your monthly payment may end up being higher than your current bills, in which case it might not be the best option for you. If your debt is small or you need a quick resolution, you may want to consider other alternatives. Consider the pros and cons before making the decision to go ahead with debt consolidation.

A debt consolidation loan is a lower-interest loan that you can take out in order to pay off higher-interest debts. It is an unsecured personal loan, so you do not need to put up collateral for it. With a good credit score and a regular income, you may be able to qualify for a consolidation loan. This is likely to reduce your payments, provide a lower interest rate, and help you get out of debt sooner.

You can get a debt consolidation loan from your bank or lender. Most banks, credit unions, and financial institutions offer consolidation loans. You need to have at least $5,000 in debt and be ready for a longer timeline. Debt consolidation loans are not a quick-fix solution – you still need to make regular monthly payments to clear your loan. If you have a good credit score and have a secure income, you may qualify for a consolidation loan.

Yes, you may get debt consolidation loans at banks, credit unions, and financial institutions in Canada. If you have good credit and a regular income with the ability to make payments on time, you are likely to be approved. Sometimes, these loans are approved under certain conditions. Some of those conditions may require a guarantor to pay in case you are unable to or put up collateral in exchange, like your home or vehicle.

To qualify for a debt consolidation loan, you need to be able to show a consistent income and have a good credit score. A minimum score of 650 is required for you to be eligible. If your credit score is considered excellent at 720 or higher, you could qualify for a lower APR, or interest rate. If you get a lower interest rate, you can save a lot on interest payments.

If you fit these two criteria, you are likely to be approved for a debt consolidation loan. A debt consolidation loan is also better for your credit compared to many other debt solutions.

Yes, it is possible to have more than one debt consolidation loan, but it is not recommended to do so. If you do choose to have more than one at a time, you will still need to abide by the guidelines set by your lender. They may have limits on the number of loans, or frequency of loans, you can apply for.

Apart from this, you should do your own calculations and consider whether the total monthly payments are affordable for you.

It may be possible to get a debt consolidation loan with bad credit, but unlikely. Even if you are able to qualify, you will be offered a higher interest rate. It is advisable to wait for a few months and try to improve your credit score instead. By doing this, you will likely get better interest rates, making it a more feasible debt solution.

Debt consolidation has a very mild negative effect on your credit score, and it usually only stays on your credit report for a few months. Plus, one of the qualifying criteria for a debt consolidation loan is that you need to have good credit already. Paying off all other debts with the loan, and making regular payments will improve your credit as well.

Overall, debt consolidation can maintain, or even improve, your credit score.

If you consolidate all your existing debt into one loan, avoid taking on any more debt, and make regular payments, then you can get out of debt as soon as you’ve paid off your consolidation loan!

Once you get a consolidation loan, you need to be careful about not carrying balances again on your credit card or line of credit. If you do need to use it, pay it off in full before the due date every month.

Debt consolidation can be done by taking out a loan via a financial institution, bank, or credit union.

A debt management plan can be created with the help of a counsellor from a credit counselling agency. While not a loan, because you still owe money to your creditors, the counsellor will help you work out a repayment schedule that works for your budget. They can negotiate with lenders on your behalf to reduce or eliminate the interest levied on your borrowing.

If you find the monthly payments manageable and have a good to excellent credit score, debt consolidation might be better than a consumer proposal for you. The bad news is, that you will still need to pay the full amount. The good news is, if you qualify, you may get a lower interest rate. Debt consolidation has a negligible effect on your credit score. It also has a better overall effect on your credit score, compared to a consumer proposal.

However, if you’re unable to make payments and have a high amount of unsecured debt, you may want to learn more about a consumer proposal. Your debt could be reduced by 70% to 80%. You need to be able to show that you’re not in a financial position to pay your debts. You will have an R7 rating on your credit report, which affects your credit score. You might be charged high rates of interest if you choose to borrow anything for the duration.

If you are able to make your payments, debt consolidation is a much better option than bankruptcy in a variety of ways. Debt consolidation does not have much of a negative effect on your credit score, whereas bankruptcy can affect it heavily for many years.

Debt consolidation involves taking out a lower interest loan which helps you pay off your debts in full at a lower interest rate. Bankruptcy is a legal process that relieves you of your debt, but it is often considered a last resort. However, if your home or personal property is at risk of being claimed as collateral, or if you genuinely do not have the funds to repay your debts, bankruptcy may be worth consideration.

Yes, you can file for bankruptcy even if you have an active debt consolidation loan. If things don’t work out even with a consolidation loan, or if your personal circumstances or financial situation changes, you are able to file for bankruptcy. For the purpose of filing, the consolidation loan would be treated as unsecured debt.