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Many Canadians struggle with credit card and other types of consumer debt. Some are even stuck in a cycle of opening one credit card to pay off another. In some circumstances, debt is racked up as a result of dealing with unexpected expenses such as home or auto repairs, illness, joblessness or divorce. With soaring interest rates, it is easy to become buried under consumer debt.

Most Canadians that pay only the minimum on each credit card bill are knowingly or unknowingly extending the life and cost of the debt. An unmanageable amount of debt can be very frustrating – especially when you start to feel discouraged about ever paying it off. There are, however, some ways to improve your debt situation and get you closer to paying everything off. Debt consolidation is a great way to make multiple credit card and other loan payments easier and reduce your interest rates at the same time.

What Kind of Debt Consolidation is Available?

There are two main forms of debt consolidation available to consumers. The first involves qualifying for and taking out a loan for the amount necessary to pay off all your credit card or other consumer debt balances in full. After applying for and being approved for a debt consolidation loan, the newly borrowed funds go directly to pay off all your debt. In many cases, your credit accounts that were in good standing are allowed to remain open, which can help your credit score considerably by showing that you have much available credit. The benefits are the simplification of multiple credit card bills into one, manageable monthly payment. The even greater benefit of debt consolidation loans is the reduction of the interest rate you will pay. For example, if you are currently paying 13% to 23% on several accounts, and a new debt consolidation loan gives you a 9% interest rate, you will save money and pay your debts off more quickly.

The second type of debt consolidation refers to using a credit counselor, or intermediary to negotiate with your creditors on your behalf. In this scenario, you debt is not necessarily consolidated (though it can be), but your total amounts are settled with the creditors. In this case, you may satisfy a debt in full by only paying a portion of it, but you may pay for it with your credit score if the account is closed.

Who Qualifies for Debt Consolidation Loans?

In order to qualify for a debt consolidation loan in Canada, you must meet several requirements. You will have to go through an application process that will determine whether you meet these qualifications. The requirements may vary some from financial institution to financial institution, but some general qualifications remain the same across the board.

Budget

The lending institution you select will review your monthly income and expenses. They will go over your monthly budget thoroughly in order to assess whether you will be able to meet the debt consolidation loan payments.

Income

Qualifying for a debt consolidation loan is like qualifying for any other loan – you must be able to afford the payments. You must be able to show that you have a stable job or other source of income. Generally banks will require that you submit paycheck stubs or copies of your most recent tax return, so it’s a good idea to have these on hand when applying for the loan.

Assurance

If your lending institution has even the remotest doubt about your creditworthiness, they will want to see some assurance that their funds will be repaid. Most commonly, assets that serve as collateral are listed or a co-signor is sought.

Amy Nutt is a freelance writer who specializes in providing great financial information for Canadians. When searching online for debt counselling or credit counselling, be sure to visit the resources available at Consolidated Credit; offering a variety of debt counselling services and financial planning tools to help Canadians get their debts under control.

Debt Consolidation FAQ:

Question: What is the best company for credit card debt consolidation loans?
I am planning to consolidate about $4000 in credit card debt by personal loan. What are the best lenders to approach?

Answer: It isn’t wise to seek credit card debt consolidation loans to consolidate credit card debt. You’d be trading off unsecured debt for secured debt. The lenders you will find are secured debt consolidation loan lenders that would require you to put up the equity on your property as collateral to guarantee loan repayment. Then guess what happens if you don’t pay up. You guessed it, they can foreclose on your property. So, it is best to do a balance transfer into a lower interest credit card account.

Question: Should I do debt consolidation or declare bankruptcy?
I have a large amount of credit card debt and I’m having trouble with wanting to declare bankruptcy because of it. Mainly because I don’t want that bankruptcy stigma over my head for 10 years. Also I can’t really afford the monthly amount that some debt places have given me. Advice?

Answer: Its true that if you file under chapter 7 that it will be on your record for ten years. If you file under chapter 13 it’s slightly less, seven years. But the truth is, that though it will be on your record for 7-10 years, the negative effects will immediately begin to diminish and by the third year you should be able to get credit cards and even FHA loans at normal rates. So it’s really not the end of the world like many think.

Question: Who are the credit card debt consolidation groups that are reputable and don’t rip you off? One that can help me?
I’m in deep credit card debt and I think the only way I can get help is through one of these programs. I heard Credit Card Advocate is a helpful one. Please let me if anybody has tried these and did it help?

Answer: There are many reputable debt consolidation groups. Essentially, they are non-profit consumer credit counseling services. But if you have exorbitant debt, the question you should be asking isn’t “are they reputable” but rather, “will they be able to help me get out of debt?”

CC Advocate has some good reviews. It certainly helps, you just need to be aware that you still have debts, and not to get into new ones even if you seem relieved from all the pressure of multiple companies trying to charge you. A personalized plan is your best shot, you can get it for free online.

Question: How do you know which debt settlement or debt consolidation program to choose?

Answer: Try Consumer Credit Counseling instead. The Financial Consumer Agency of Canada (FCAC) advises Canadians to do their homework about credit counseling services before entering into an agreement. According to the Agency, consumers should shop around and compare services of credit counseling bodies and take note of the different fee structures of for-profit and not-for-profit credit counseling, as well as what services are offered for those fees. Consumers considering entering into a DMP should also be aware that an R7 credit rating will be entered in their credit report and that their credit report will show that they used credit counseling, a notation that will remain on the report for at least two to three years. Prospective lenders, employers and landlords may view information in an individual’s credit report, if the application forms consumers sign grant them permission to do so.

Question: Bankruptcy, consolidation, or debt reduction?
I’m looking at an uncomfortable situation. My family has a considerable amount of debt. We’re talking around $30,000. We are currently able to manage payment on our cards, but we’re not able to get anywhere. We’re at a point of near desperation. So I was wondering what was best? Should we file for bankruptcy, try to get a loan for debt consolidation, or try one of the debt reduction programs out there?

Answer: Bankruptcy should be the last thing to pursue unless you want to risk the forfeiture of your property in order to repay your creditors. Filing bankruptcy also damages your credit for 10 years.

Getting a loan for debt consolidation is very risky. It would require you to trade your credit card debt for a “secured” loan where you’d use your property as collateral to guarantee loan repayment. If you miss a debt consolidation loan payment, the lender can do a foreclosure on your property to collect on the outstanding debt. So generally, a debt consolidation loan isn’t a practical idea.

In terms of trying out a debt reduction program, you have two choices – consolidating your debt with a credit counseling debt management plan (DMP) or settling your debt with a debt settlement program. In terms of debt reduction benefits, here are the key differences between the two. A credit counseling DMP consolidates your credit card debt by reducing your interest rates and a debt settlement program eliminates your debt by reducing the debt principal and interest.

Question: Could debt consolidation hurt my credit rating?

Answer: Keeping your debts will hurt it more. The secret is to find a reputable company, and one that suits you well, considering not only the amount you owe, but your situation as a whole. Get a complete profile, ask questions, read the fine print.

Question: Is debt consolidation worth it?
Any advice you have would be much appreciated. I have about 6 grand worth of debt.

Answer: By consolidating your debt you would hope to reduce the amount you have to pay by securing a lower interest rate as well as reducing the time over which the debt is to be paid. However whilst you may realize those benefits by consolidating your debt, it does however come with some real risks that could damage not only your credit score but also put your home at risk. So before signing for a consolidation loan you really should know the risk that you are exposing yourself to.

Question: Creditors trying to Garnish Wages?
I have a creditor who is trying to garnish my wages. I am asking this question is because I am making regular payments to them and it is being done through a consumer credit debt consolidation agency; yet the creditor is trying to garnish my wages. Can they garnish even if I am paying them through a consumer credit agency?

Answer: They would have to get a court judgment against you first and the court would have to order garnishment. If they are just threatening you, then they are the ones misbehaving. Talk to your debt consolidation agency.

Racking up consumer debt is very easy to do. You may have done so without even noticing. A few charges here and there and bam! You’re hit with high interest rates that make it practically impossible to make a dent in that debt. You may have special circumstances that forced you into debt – illness, divorce, the unexpected death of a loved one, or even unexpected home or vehicle repair expenses. The problem is that while credit card debt is piled up, interest only grows. If you pay only the minimum amount due each month on any given credit card, you are very unlikely to ever pay it off fully. You may even feel so deep in the hole and discouraged about ever paying off your debt that you may consider bankruptcy. Before you give up, you should know that there are ways to work around your debt and get ahead despite those soaring interest rates. In these tough economic times, paying even just the minimum due on each of your credit card accounts can prove to be quite difficult. If you are looking for ways to reduce household costs or increase monthly income, consider how getting rid of your debt will affect your finances.

Debt Consolidation Loans. One proven way to improve your debt situation is to consider a debt consolidation loan. The most common form of debt consolidation consists of the following: – The ‘in-too-deep’ debtor applies for a debt consolidation loan. – The lending financial institution issues a new loan for an amount that is sufficient to pay all of the debtor’s outstanding debt. – The debtor uses the newly borrowed funds to make final, lump sum payments on all his outstanding debts.

Does it sound simple? That’s because it is! As long as you’re able to get approved, you should be able to simplify your life and improve your debt scenario. You may be wondering what the improvement is, since you are still in debt for roughly the same amount you owed. The advantage lies in the interest rate. Debt consolidation loans are likely to carry a much lower interest rate than those carried by your various credit cards and other types of debt. In addition to that, you’ll be simplifying your life by having just one substantial monthly payment to make rather than several smaller ones to keep track of.

Debt Consolidation Specialists. Another way of consolidating consumer debt is to employ the services of a debt consolidation specialist. The specialist will actually negotiate with the debtors various creditors. Usually these specialists have relationships with creditors and are able to leverage them to get the best possible outcomes for their clients. In addition to that, debt consolidation specialists are experts who know what the creditor will able to concede and will also have a good sense of what the debtor will be able to afford in terms of monthly payments. The debt consolidation specialist will work as an intermediary between the debtor and creditor until a feasible and mutually acceptable plan is outlined. Debt consolidation professionals will not intentionally make arrangements that will put a debtor in a position to fail.

There is Help If you are feeling buried by debt and discouraged about ever finding your way out, remember that there are resources available to you. Canadian debt consolidation can help financial obligations seem more manageable and can also help to improve your credit score. Before signing up for anything, make sure to review all the options. Try to get references or look for customer testimonials about any service you consider using.

Amy Nutt is a freelance writer who writes on a variety of financial topics including personal budgeting and debt consolidation. For more information about personal finance and credit counselling, ConsolidatedCredit.ca is a tremendous resource on the topic for Canadians.

Debt Consolidation FAQ:

Question: I have about $5000 in debt and its all starting to catch up. My credit sucks, how can I get out of this mess?
I live in Canada and have tried to get a debt consolidation loan but because my credit sucks I am not approved. Any other ideas?

Answer: If you have several credit cards, I suggest you pay the minimum on each card except for one. On the one card make the highest payments each month that you can until you have paid it off. Once you are done with that one concentrate on the next one also making high payments while paying the minimum on the others until you are done.

Question: Separation, Bankruptcy and Credit Card Debt?
My husband of 29 years recently walked out on me and our three girls. I’ve been awarded spousal support and child support through the courts. $400 spousal, and 500.00 Child support. Ever since he left, I have fallen behind on all of my bills, but mostly my two Credit cards which are solely in my name. These are in my name because he had a business bankruptcy about five years ago, and was not able to obtain any credit. These cards are both maxed out to a total of nearly ten thousand dollars, and the phone calls have just begun. I try my best to keep my payments up, but I’m not even meeting the minimum.

Answer: Look to the government for some support, you’re likely able to qualify for food stamps / financial assistance at this point. Call your creditors back and ask for hardship assistance. Tell them that you want to pay the bills off, but at this point if they can’t be flexible then you’re thinking of bankruptcy. That will get some wheels turning a bit more. Don’t be afraid to ask for a supervisor if you don’t get what you want, this is your future on the line.

Question: Consolidation/Bankruptcy?
I am $97000 in debt and I am thinking of consolidation or bankruptcy (in BC, Canada). Every couple of months I get an application from MBNA for their consolidation loan which I am thinking of applying for. But what I am scared of is, if I do take this consolidation loan, and for some reason I can’t pay monthly payments and therefore I decide to declare bankruptcy, will I be able to do so?

Answer: Opt for a debt consolidation loan: The easiest method of getting a debt consolidation loan is to utilize the equity of your home. Equity of your home is calculated and determined by the difference in the amount you have paid and the amount you owe. If the amount you have paid is more than the amount due, you can use it as collateral. This allows you to borrow money on lower interest rates. Besides, you also get tax benefit on this type of loan. Consult your tax advisor before opting for this loan.

Question: Bad credit loans?
Does anyone know of a company in Canada that will give personal or debt consolidation loans to people with bad credit?
I have a visa in collections, which is the only credit I had. I don’t have any assets and nobody will give me a chance. I have a good paying job now and only want to borrow 6000$. I also don’t have a co-signer. Any ideas?

Answer: 1. Use that good paying job to pay off the collection.

2. Save the money that you were planning to borrow.

3. Get a saving secured credit card to rebuild your credit reputation.

When the only credit you had went to collections is it any wonder no one will lend you money? It may sound harsh but it is the truth.

Question: Credit/Collections steps?
My credit cards are maxed out and I have been unable to make the minimum payments (or any payments) for a while now. I am with Royal Bank of Canada, if that makes any difference. After collections, they can garnish my wages, correct?

What are the steps that happen in order and how long does it usually take before I am officially screwed (ie, will I get sued? 7 years no credit?). Apparently I do not qualify for debt consolidation. Not sure what my options are, as my minimum payment for my credit debt (550) is almost as much as my rent (769).

Answer: Not sure what the laws in Canada are but in the US it is this. (1) They will cut off your credit and turn it over to collections (2) If it is a large sum for one company they can take it to court (3) If they take it to court the judge can garnish your wages for up to 75%. They can also take everything you own and sell it for payment.

Some credit repair places, the legal ones, can stop the interest and set up a payment plan. You will pay by this plan because your income check will be direct deposit and the money withdrawn from your account. A freeze will be placed on your bank account for the monthly amount of the payment. Your rent, food etc is of no concern for them.

Needless to say, your credit is shot for 7-10 years AFTER the last payment to the last company. You might be lucky and they will just write it off

That is the bad side. Talk to the credit repair folks, get a legal one and not a fly by night group, and they can help.

Question: Avoid bankruptcy in Canada?
My husband has debt of over $60,000 and he is thinking of bankruptcy. My question is; my husband has been avoiding calls for two and a half years, what is the best option now bankruptcy or consolidation? At this time my husband doesn’t have a job and we have a family of 5. If he consolidates how much of the loan will be written off?

Answer: Avoiding phone calls for that long constitutes fraud. Expecting companies to charge off the interest is ludicrous. You need to become responsible. He should have been telling those he owes as to why he’s not paying the bills. Your husband needs to get working. If your children are out of the diaper stage then you too need to be working. Just think, the more kids you have the more trouble you will get into. In the USA there is a group set up by the government called Consumer Credit Counseling. Find out what the equivalent there is in Canada and have him set an appointment with them for consolidation. In the meantime stop spending.

Question: Collection agency saying I owe but I’ve paid everything Help!?
My husband received a letter today from Financial Debt Recovery claiming that he owes $6200+. We took out a consolidation loan a year or two ago and paid off all bad debts. I also work for a bank and was able to obtain our credit reports. According to the bank we both have clean slates. I sent a request through to TransUnion Canada for my husband’s full credit report and there are a couple items on there from years ago that were written off – but don’t add up to anywhere near 6000. This law firm and Financial Debt Recovery are legitimate businesses. What’s going on here?

Answer: Did you get a written settlement agreement when you originally paid off the bad debts? Collection agencies are notorious for agreeing to settlements over the phone then denying that any settlement was made once they get your “settlement” money. They usually resell the debt to another collection agency, which inflates the amount due and starts the whole collection process all over again.

Debt collection laws in Canada are handled by provincial laws, rather than one national standard law as we have here in the USA. Send them a letter via Certified Mail + Return Receipt (NOT regular mail) stating:

I am requesting written validation of this alleged debt, which includes:
- a copy of the original signed contract with my signature
- a fully itemized statement showing how the amount you are asking was calculated.

Question: What are the disadvantages of getting Debt consolidation?
I know the advantages of it but I want to know the risk too of it.

Answer: Cons:
Get Into More Debt. It may be tempting to continue to use the credit cards that you’ve paid off. This is one of the reasons why debt consolidation is not a cure for credit problems. In fact, it could actually make problems worse, by allowing a person to get into more debt than they started with.

May Cost More Overall. Even though the monthly payments and interest rate might be lower, you can end up with a longer-term loan in which you end up paying more interest in the long run.

May Take Longer to Pay Off. If you don’t end up using the extra monthly savings to pay off your loan (and perhaps even if you do), it could take you longer to get out of debt.

Could Lose Your Home. If you go the route of a home equity loan, the lower interest rate that comes from listing your home as security might not be that beneficial if you default on your loan and lose your home.

One Payment. In some cases, it can be beneficial to pay off smaller loans with higher-interest rates first. You don’t have that option if you’ve lumped all your debt into a single loan.

May not Qualify for a Loan. It’s possible that with so much debt, you may not qualify for an additional loan. Or, if you do qualify, the interest rate might be high.

Disreputable Debt Consolidation Companies. Not all non-profit debt consolidation services are looking out for your best interests. Some companies may be downright scams.

For people facing substantial debt, credit consolidation may be the best solution. This gives the debtor the ability to manage unmanageable debts by combining multiple monthly payments into one payment that fits better into their budget. Consumers who are carrying a high debt load and struggling to make their monthly payments on credit cards and other unsecured debts may benefit from credit consolidation.

Start by Talking to a Debt Counselor

Before considering debt consolidation you should contact a debt counselor to discuss your financial options. Debt consolidation is not a one-size-fits-all solution. There are many ways to approach and manage debt to get the best results for your individual situation, and a debt counselor can help you think through these options. You shouldn’t join a debt consolidation program without talking to a debt counselor first.

Consider a Debt Management Program

One possible low cost option is entering a debt management program through a non-profit credit counseling organization. When you enrol, a professionally trained credit counselor will contact your creditors, on your behalf, to negotiate a lower interest rate and reduce your minimum payments to something you can afford. Then, to alleviate any further stress, the credit counseling organization will combine all of your payments into one easy monthly payment, which you will send to them and they will send to your creditors. Some debt management programs even offer auto draft, which makes debt repayment hassle free.

With a debt management program, you will be paying less interest, which means more of your monthly payment will go towards the principal. This allows you to get out of debt much faster than if you were trying to do it on your own. Because of this, many of these debt management programs will advertise that they will save you thousands. They are not actually lowering the amount you owe, but they are lowering what you will pay by negotiating a lower interest rate for you.

Keep in mind that these services are not free. The company handling your debt has a staff to pay and offices to maintain, so they will charge a fee to cover these needs. The fee varies from company to company, so be sure to inquire about the cost before you apply for the program.

Debt Consolidation Loans

Another option to deal with unmanageable debt is to take out a debt consolidation loan, use it to pay off the total sum of all outstanding debts at once, and then just repay the loan monthly. Often the monthly payment on a debt consolidation loan is less than the combined monthly payments on your existing debts, which can make your debt more manageable. Keep in mind that you will be responsible for paying any service fees and interest, which may range from 5 to 18% of the loan itself depending on your circumstances and credit score.

Many debt consolidation loans require you to use some form of collateral, such as a house or car, to secure the loan, particularly if your credit score is low. This can be a great solution if you want to eliminate calls from creditors and improve your credit history quickly, but if you miss any payments you could be putting your home or car at risk. Also, if you add to your debt after taking out the debt consolidation loan, you will be face even more difficult money problems. The only way a debt consolidation loan will help is if you can stop adding to your debt.

If you are having problems managing your bills and debts each month, you will probably save money be enrolling in a credit consolidation program or taking out a debt consolidation loan. Many communities have low cost options to help you manage your budget more effectively in order to increase your financial stability and eliminate creditors’ harassing calls and letters while establishing a healthier credit history.

Amy Nutt is a freelance writer who specializes in providing great financial information for Canadians. When searching online for debt counseling or credit counseling, be sure to visit the resources available at Consolidated Credit; offering a variety of debt counseling services and financial planning tools to help Canadians get their debts under control.

Debt Consolidation FAQ:

Question: Are there any good debt consolidation service in Ontario, Canada that you recommend?
The ones that will not rip you off or ruin your credit score.

Answer: There is some good ones in Montreal and Toronto and they are non-profit . Go to Google and in the search bar put credit counselling/Canada and they are there.

Question: How much time will it take to recover your credit history after consolidation of consumer debt in Canada?

Answer: It will show on your credit bureau for 6 years.

Question: What exactly happens to your credit if you do debt consolidation?
I have $7,000 in debt and I have heard about debt consolidation. Does this negatively affect your credit rating? Do you get to choose how much you pay monthly or is there a set amount they make you pay? I live in Canada, if that matters.

Answer: The companies will negotiate with your credit card’s to work out the monthly payments, usually you can tell the debt consolidation firm how much you can pay per month and they try to get it to that amount.

My husband did it and it is on his credit record. It has effected his score negatively so places that just go by the numbers it will effect.

It can potentially effect your score more to not pay the credit card debt off so if you aren’t going to be able to do so, it might be worth the smaller hit.

Question: Debt consolidation?
Can anyone tell me if by consolidating all of my credit cards, a mark goes against my credit? Will it be hard to get credit cards again? I have never been late on payments, I just feel swamped with credit card payments. I am in Ontario Canada if it makes a difference.

Answer: You should really consider meeting with a credit counsellor. Find an agency near you that you can meet with a counsellor face to face. They can tell you how different types of consolidation might affect your credit. It really does depend on the type of consolidation as well as your own personal situation (credit score and debt accounts).

Question: Has anyone ever dealt with this debt consolidation firm before?
Has anyone ever dealt with the National Credit Counsellors Of Canada Inc. before? If so has your experience been good or bad; any feedback would be greatly appreciated.

Answer: When you meet with them, come with a prepared set of questions and review their contract. Shop and compare. Make sure you are getting the best deal for what you are looking for. There are legitimate businesses out there that will assist you with debt consolidation, but you need to ensure they will not overcharge you or create additional problems. Check with the Better Business Bureau to see if there had been any complaints made against them, as well as your provincial Consumer and Business Affairs Ministry to see if there had been prior issues before you choose to deal with them.

Question: Business debt consolidation?
Does anyone know somewhere in Alberta Canada that can help me consolidate my business debt (including already financed equipment) so that I have 1 payment instead of 3 like I already have? I would only like to know about ones that have a reasonable rate and no pay for a list type emails.

Answer: Consolidate your own, if you can. Most companies who do this for you will charge you way too much. Some may leave you with bad credit in the end.

Question: Will bad credit in the U.S. affect my credit in Canada?
I have considerable U.S. credit card debt and I am considering using a U.S. company to consolidate the debt. I live in Canada and have my home and all other assets in Canada. Does anyone know if ruining my credit in the U.S. will affect my credit in Canada?

Answer: Yes. You can’t get away with it. They will do a US credit check when you apply.

Question: What is a reputable agency for credit card consolidation?
I have about 13,000 in credit card debt. I am recently single and now carrying the household costs alone. I have ran up some debt and am having a hard time making the monthly payments, I am looking to consolidate before I ruin my credit with late payments. I am in Canada.

Answer: Look in your yellow pages under credit, there are several. Credit Counselling of Canada is one of them. If you own a home you might be able to get a bank loan to consolidate your debts.