Are you drowning in debt and looking for a strategy that will help you pay it all off and take control of your finances? Tired of being pulled by different lenders and thinking of making just one monthly payment? This post is for you!
A debt consolidation loan is a debt management strategy that helps you combine all your debt into one such that you only have to pay one monthly payment instead of paying multiple people at the same time.
Although this strategy doesn’t mean your debt is canceled or forgiven, it sure guarantees that with discipline, you lose the stress, get back your peace of mind, pay off your debt faster, and be on the path to a debt-free life.
In this post, I will discuss how debt consolidation works, the top providers in Canada, and what you must consider before you go for a debt consolidation loan.
Editor’s Top 3 Debt Consolidation Loans in Canada
What Is Debt Consolidation Loan and How Does It Work?
A debt consolidation loan is a type of loan that you take to pay off all your other unsecured debt so that you owe one lender only and you make one monthly payment usually at a lower interest rate to that lender.
Maintaining multiple accounts can be a heavy financial burden, so this debt management strategy is designed to simplify your financial life by helping you manage multiple debt payments – including credit cards, lines of credit, and payday loans – under one single payment.
With a consolidation loan, you will save time and effort and reduce the number of payments you have to make each month.
By combining all your high-interest credit cards and loans into one low-interest loan, you’ll be able to save money on your monthly payments and enjoy a new feeling of control over your finances.
How Debt Consolidation Loan Works
Debt consolidation loans can provide a great solution for those who have a multitude of debts that are impeding having a comfortable life.
Debt consolidation replaces all your existing loans or bills with a single, simple debt consolidation loan.
The idea behind this type of loan is to provide you with a fresh financial start by concentrating all of your previous debts into one easy payment.
Perhaps you are already in debt, and you have debts on multiple accounts.
You may have even tried to merge these debts separately, or you may have attempted a simple process of paying off individual accounts one by one.
However, debt consolidation has a few things that these options don’t have.
It gives you the advantage of having a single loan that has all your debts, rather than several loans for several distinct accounts.
The advantages of this practice include lowered interest rates, monthly payments that do not exceed 40% of your monthly income, among others.
5 Best Consolidation Loan Providers in Canada
|Consolidated Credit Canada||Best rate and overall best|
|Loans Canada||Maximum loan amount|
|Loans Connect||Flexible requirements|
|Loanz||Specializes in servicing clients who have been denied financing by banks.|
The following explains the best consolidation loans in Canada. Getting the right consolidation loan is crucial to your financial success.
Here are the current best consolidation loans to consider in Canada.
1. Consolidated Credit Canada
- Maximum Loan Amount: $25,000
- Maximum Loan Term: 24-60 months
- Rate: 0.5%–8% on the first and second mortgage
- Credit Score: For debt consolidation loan: Good-excellent (660+) and for Debt management plan: No minimum credit score required.
Consolidated Credit Canada is a credit counseling agency that provides debt solutions to people that are over their heads in debt.
Whether you’re looking for a debt consolidation loan or debt management plan, Consolidated Credit Canada can help.
They have great rates and can help you establish an excellent plan to pay back your loan.
So if you are in need of a debt consolidation loan, counseling, and credit repair, you can start here on your journey to improving your financial situation today, or call their toll-free Telephone line-1 (844) 868-9898.
2. Loans Canada
- Maximum Loan Amount: $300,000
- Maximum Loan Term: 60 months
- Rate: 3% – 46.96%
- Credit Score: No minimum
Loans Canada is a loan search engine that partners with multiple lenders, helping you find and compare the best consolidation loans in Canada.
With as low as 3% interest rate and zero credit score requirements, you can get up to $300,000 loans from Loans Canada repayable in 60 months maximum.
Loans Canada has one of the best turnaround times and approval Speeds in Canada.
You can get your loan deposited within 48hours of approval. Check it out here
- Maximum Loan Amount: $50,000
- Maximum Loan Term: 60 months
- Rate: Avg. 10%
- Credit Score: No minimum
is your go-to search engine for finding the best consolidation loans in Canada.
LoanConnect takes into account your income, financial situation, and other factors to suggest an appropriate loan option.
You can find the best loan options in Canada by clicking a button on LoanConnect.
By partnering with multiple lenders, LoanConnect offers access to $50,000 loans with up to 60-months terms.
- Maximum Loan Amount: $1,000 to $15,000
- Maximum Loan Term: 12 months to 5 years
- Rate: 29.9% to 46.9%
- Credit Score: No minimum
Loanz Canada specializes in servicing clients who have been denied financing by banks.
They have helped thousands of people who have been declined credit or have bad credit but still want a loan.
Their fully licensed lenders can help you into car loans, personal loans, and debt consolidation loans.
Furthermore, the lender helps out people who have a poor credit rating or who want to file bankruptcy.
The company offers consolidation loan, debt consolidation loan, bad credit home loan and others.
They are available online and the service process is simple and secure.
Check them out here.
- Maximum Loan Amount: $12,500+
- Maximum Loan Term: 60 months
- Rate: Variable
- Credit Score: Required
Borrowell is a credit score service provider that partners with debt consolidation loan providers to help their customers consolidate and improve their credit scores.
A Borrowell account also includes a credit tracker that monitors users’ credit activity.
Users can set up alerts to be notified of any changes in their scores and receive tips on how to improve them.
You are likely to find the best consolidation loan provider through Borrowell since it partners with multiple lenders.
Advantages of Debt Consolidation Loans
Here are some of the benefits of consolidation loans in Canada.
1. A Single Monthly Payment
A debt consolidation loan can really help you save on monthly bills.
All your debts are rolled into one single monthly payment, which can reduce the number of lenders you have to deal with, saving you time and money.
2. Reduces Interest Rate
A debt consolidation loan could lower your interest rate, reducing the amount of money you have to pay back over time.
3. Eliminate Pressure from Creditors
Consolidation loans usually involve paying off all your current debts with one lump sum.
This can mean that creditors stop calling and sending letters regarding your old debts; this can be a great relief if you feel like you’re drowning in bills.
4. Improve Credit Score
Consolidating your debts could help you repair your credit score as all your existing debts are consolidated into one single payment, preventing your lenders from reporting you to credit bureaus.
Disadvantages of Debt Consolidation Loans
Here are the major disadvantages of consolidation loans you should consider before applying.
1. Extra Fees
Some debt consolidation lenders may charge additional fees such as application fees, annual fees or balance transfer fees. You may end up paying more in total due to the additional fees charged by your lender.
2. Increase Interest Rate
You can find yourself paying more interest on your debt consolidation loan than you were paying before — depending on your credit score.
3. Not For Everyone
Depending on your lender, you will need at least 650 to qualify for consolidation. This makes loan consolidation restrictive to people with poor credit scores.
How to get a debt consolidation loan
Have you been searching for how to get a debt consolidation loan? How do you know if you qualify for one? Is there an application process? Will I need income documentation? These are all critical questions you should be asking.Step 1: Choose a Lender – Consolidation loans can be obtained from any lending institution that offers this type of loan. Start your online search for the best possible interest rate and the most convenient terms for you.Step 2: Choose the lender with the best interest rate- Consolidating debts into a single low monthly payment can seem like a great idea, but you will want to make sure that you deal with a reputable company that can offer you a low-interest rate. These are some steps you will want to follow when looking for a good consolidation loan.Step 3: Know if you qualify- If you are struggling with paying off your debt, debt consolidation might be the way out of that sticky situation. Find out all you need to qualify for the loan and make them available. However, If you are thinking about getting one of these loans, know the eligibility and requirements.Step 4: Create a good credit report and find the one that can offer the amount you need- Despite the advantages of having a consolidation loan, you may still find that you cannot get the amount that you need. If this belongs to your case, then you should know your credit history has already an impact on your ability to apply for a loan. For you to qualify for a consolidation loan it is critical to creating a good credit report.Step 5: Know the application process and other income documentation- Debt consolidation loans might help you get out from under that 300 credit card balance. In these types of loans, they rolled much of the debt into one loan with a fixed rate and term that make it easier for you to pay off. Take advantage of this loan by showing income documents if required and other application processes.
Types of Debt Consolidation Loans
Consolidation loans vary according to the following categories:
1. Debt Consolidation Loan
This refers to a loan from a bank, credit union or other financial institution toward consolidating all your unsecured debt into a single low-interest loan.
2. Low-Interest Credit Card
If you use a credit card frequently, it’s easy to get stuck with high-interest credit card debts.
A low-interest credit card loan consolidates your high-interest credit cards into one low-interest card.
3. Line of Credit
A line of credit is a revolving line of credit.
It allows you to borrow a certain amount and pay it back over time.
You can use a line of credit to consolidate your debts with one single monthly installment.
A home equity line of credit (HELOC) is a second mortgage against your home or property equity.
A HELOC can be your cheapest option for consolidating your debts. However, it comes with strict rules that can worsen your situation when broken.
Why my debt consolidation loan was rejected
Have you always had trouble with getting a debt consolidation loan? Have you ever been denied when trying to apply for a loan? If so,
- It is because your credit history is the reason behind it. You need a good credit score.
- Unsatisfying income documentation. I recently applied for a debt consolidation loan but was rejected due to insufficient income.
- I had a debt consolidation loan application rejected recently. Why? A member of the branch staff told my friend that it was because she only had a small amount still outstanding with them.
- The application would be declined when you don’t provide all the requirements and they find anything unusual.
- There are certain factors that a lender will look at when approving or rejecting your loan application through. While a good credit score is usually the most important factor, they will also look at your income and monthly expenses, as well as any reason different creditors have lent you money.
- Sometimes, lenders, who provide low-interest rates, might ask for more documentation when compared to their counterparts. So if you cannot provide more documents, they will decline your loan.
How Do You Qualify for a Consolidation Loan?
The qualification process for these loans is fairly straightforward, but it varies based on the type of consolidation loan you request.
Generally, a lender will want to know that you have the ability to repay your debt consolidation loan before approving your request.
Here are the common requirements for a consolidation loan approval in Canada:
1. A Good Credit Score
Having a good credit score is instrumental in determining how you qualify for a consolidation loan.
A good credit score will determine how much you can borrow, your interest rate and loan fees.
While some lenders offer debt consolidation loans to people with poor credit scores, the interest and fees are always high.
2. Steady Cashflow
Lenders don’t want to take the risk of loaning money to people they’re not sure they’ll be able to pay back.
Hence, lenders require borrowers to have a steady source of income to demonstrate their ability to pay back the loans.
3. Debt Amount
Lenders also consider current debt balances when reviewing applications for debt consolidation loans.
Your lender will compare your debt balance and income to determine how much debt consolidation you’re eligible for.
How Can I Choose the Right Consolidation Loan and Lender?
Here are the major factors to consider when narrowing your selection on the best consolidation loan in Canada:
- Annual Percentage Rate (APR): This is one of the most important things to look at when choosing a consolidation loan. APR determines how much interest you’ll pay over the life of the loan. The lower the interest rate, the better deal you’ll get on your consolidation loan.
- Fees: The next thing to consider when choosing a lender is the fees involved. There are many different fees that may be associated with your loan. However, choosing a lender will lower fees in order to pay your debt faster and cost-effectively.
- Loan amount: The loan amounts you can qualify for with a consolidation loan will vary depending on your credit history and how much debt you have. Choose a lender that offers as much loan you need to consolidate your debt.
When to Take a Debt Consolidation Loan?
Not all debt situations qualify for consolidation loans. Consider a consolidation loan an option when you have:
1. Large Debt
If you have multiple unsecured loans like personal loans and credit cards, you may want to consider consolidating your debt into one loan.
This can help you pay off your debt faster and save money in the long run by lowering your monthly payments.
2. A Good Credit Score
Your credit score must be at least 650 to qualify for a low-interest debt consolidation loan.
If you have a poor credit score, your interest and fee could be higher, limiting your ability to pay off your debt faster.
3. Constant Cash Flow
When you have a constant cash flow to meet your monthly payment, a debt consolidation loan could be your perfect option for paying off your multiple debts.
But if the reverse is the case, you should consider other alternatives to avoid compounding your debt burden.
Other debt consolidation options
Debt consolidation will be one of the best options for you if you can repay your debts. There are several other options that you might get time to explore which may help, depending on your situation. These could be:
- Afresh start through personal bankruptcy
- Budgeting during difficult financial situations
- Using credit counselling services among others.
Is Debt Consolidation Loan right for me?
Debt consolidation loans, also known as debt consolidation mortgages, aim to be a one-stop solution for all your debts.
- If you are struggling under the weight of credit card bills and other debt, a debt consolidation loan might be just what you need. The trouble, however, is that there is plenty of misinformation about this type of loan out there, and it’s easy to make mistakes that could put your finances in a bad place.
- It is a unique financial product offered by many lenders to solve the problem of carrying a high amount of debt. If you have multiple debts to repay and are struggling with finances, then a debt consolidation loan is right for you.
- A debt consolidation loan is one of the most commonly asked questions by consumers. Many people who need to consolidate debt and get a bankruptcy loan need a debt consolidation loan because they do not know how to avoid paying more money in interest than they should be.
- For many individuals and families, the distraction of everyday life can make it difficult to focus on a solution to eliminating their debt. For example, you might try to negotiate with your creditors but rarely get a response. Or perhaps you have tried working out a payment plan with your creditors only to find that they will not cooperate. When you have tried everything else and are still struggling with constant calls from creditors, government agencies, and collection agencies, it makes sense to look into the possibility of a debt consolidation loan as a solution.
- If you have been contemplating getting behind on your credit cards because the interest rates are just too high, then it may be the right decision for you to get a debt consolidation loan.
Debt Consolidation Loan Calculator
A debt consolidation calculator is a business tool that helps you calculate the total amount that can be saved by consolidating all your debt into one loan.The debt consolidation calculator online helps to calculate monthly payments, total interest, and the total amount payable. You may enter many debts and details (interest rate, loan duration, principal etc) in the form below to get a clear picture of your debt and its impact on your financial condition.
Student Debt Consolidation Loan
What is a student debt consolidation loan? The simplest definition of a consolidation loan is that it allows you to transfer all of your existing student loans into one in order to simplify repayment. You can lower the payments and consolidate (combine) them into one loan. This can have a huge impact on your monthly payments and make you more eligible for Federal Loans.Student debt consolidation loans are a safer option to consider than debit cards to pay college expenses. Consolidating your loans ensures you have a single monthly payment rather than several payments. By consolidating, they will average out the interest rate on each of the smaller loans and you will have one interest rate for the entire loan consolidation program.Student debt consolidation is an option many people are turning to, especially young professionals fresh out of college and starting their first jobs. You might consolidate your student loans to help you pay off the debt faster than on your own, streamline your payments, or even help you qualify for a home loan that you couldn’t otherwise get because of student loan debt. It can all seem pretty tempting.Debt consolidation is a method of getting out of debt by using a single loan to pay off all your other debts. Consolidating your loans will make the repayments easier to manage and save you money on finance charges in the long run. It’s a worthwhile option, but it won’t suit everybody.
Is Debt Consolidation a Good Idea?
Yes, and no. Debt consolidation is a good idea if you have a large amount of debt that you’re struggling to pay off.
But if you don’t have a steady income stream to pay off your consolidation loan, it’s not worth taking it.
Does Credit Consolidation Ruin Your Credit?
Yes. Your credit is checked when you apply for credit consolidation.
This can temporarily decrease your credit score.
Your credit score could also decrease when your credit utilization is limited due to credit consolidation.
What Credit Score Do I Need for a Debt Consolidation Loan?
650 is the average credit score requirement for debt consolidation loans in Canada.
Can I Get a Debt Consolidation Loan with Bad Credit?
You can get a consolidation loan with bad credit, but the interest and fees will probably be high.
If you’ve more questions on consolidation loans in Canada, kindly drop them in the comment section.
Debt consolidation loans can be a great option for people who need help managing their debt. They created the debt consolidation loan to help simplify your financial situation. If you are tired of all the collection calls, have fallen behind on payments, are having trouble managing multiple accounts and lenders, or just plain feel overwhelmed by all your debt then debt consolidation loans, also known as personal consolidation loans or unsecured loans, might be a fantastic solution. Using a debt consolidation loan might mean that you will be able to save thousands of dollars as well.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
The primary purpose of Money Reverie is to help everyday Canadians make better financial decisions by providing up-to-date financial news and information, reports, product reviews, and government programs.