Canadian debt statistics show us a dismal outlook; the average Canadian owes $1.79 for every dollar they make of disposable income. For Canadians looking for a way out of their debt cycle, debt consolidation can help. Whether you’re struggling under the burden of student debt, credit card debt, medical bills, or any other large debts, debt consolidation might be the solution you need.
What is a Debt Consolidation Loan?
A debt consolidation loan is used to pay off all of your outstanding debts, bills, loans, and late payments. It reduces your payments from half a dozen to only one, and you usually get a better interest rate and lower monthly payments, so you pay less overall. They are even available for businesses as well and are a promising loophole to get out of an unstable financial situation.
Best Debt Consolidation Loan providers in Canada
The best debt consolidation loans are offered by:
The debt consolidation loans from Loans Canada are available in any amount up to $300k and have no minimum credit score requirements. Your loan term will range from 3-60 months depending upon your borrowed amount and rates will range from 3% to 46.96%. you will be approved and have your money in as little as 48 hours.
Loan Connect debt consolidation loans have no minimum credit score. Rates begin at 4.6% with loan amounts up to $50,000 on terms of 12-60 months. The loan connect service connects you to more than 20 of the best lenders in Canada and makes the application process much easier. Once you fill out the application form, you’ll receive loan offers to review and you can choose the one with the best terms for your needs. With Loan Connect, you’ll receive funds in as little as 12 hours in some cases.
If you want a debt consolidation loan from Borrowell, you must have a good credit score (above 680). You can borrow up to $35,000 with rates ranging between 5.6% and 29.9%. your loan term will range from 3 to 5 years depending on which offer you choose. When you get a loan from Borrowell, you’ll receive free credit monitoring and a free credit report as well, which are invaluable tools for anyone climbing out of debt.
To get approved for a debt consolidation loan from Ferratum Money, you must have a credit score of at least 600. You can borrow between $500 and $15,000 to cover your outstanding debts and will be expected to pay back your loan with interest rates starting at 18.9% on a term between 6 and 60 months. To be eligible to borrow from Ferratum, you must be employed full-time for the last 3 months earning a minimum of $2500 per month and must be aged 20 or older.
Lending Mate is a relaxed lender with no credit score requirements or other eligibility restrictions. You can borrow between $2000 and $10,000 at a rate starting at 34.9% and a term lasting between 12 and 60 months. Lending Mate requires a guarantee co-sign on your loan so that they’re guaranteed a payout if you default on the repayment terms of your loan. Nearly anyone will get approved through Lending Mate with this process. They also don’t apply prepayment fees if you wish to pay off your loan faster with bigger payments.
How to Choose the Right Lender and the Right Loan
Given the variety of debt consolidation loans out there, it can be difficult to know which one is best for your situation. To determine if the loan will work for you, check out the terms of the loan.
- APR: The annual percentage rate of your loan is the amount of interest you pay through the year. The higher the APR, the more interest you pay on the loan.
- Loan Amount: The amount of your loan is crucial since you use that money to pay off all of your outstanding debts. If you need $35,000 but your lender caps their loans at $20,000, you need a different lender who will work with your needs.
- Fees: Make sure you read your contract carefully so you know all of the associated fees that come along with your loan. A low interest rate might suck you in initially, but there might be surcharges such as an origination fee or prepayment penalty that offset or entirely negate your low interest rate.
Different Types of Debt Consolidation Solutions
Debt consolidation is not a one-size-fits-all type of solution. There are multiple avenues you can take depending on your unique situation. Here are the most common debt consolidation options:
Debt Consolidation Loan
The most popular avenue Canadians take is to get a debt consolidation loan since they have a lower interest rate than most other loan types and simplify your repayment every month with one payment rather than several. This method may extend your repayment term by months or even years, which adds additional internet payments, but will more reliably help you out of debt.
Another popular option among homeowners is using home equity against your loans. Equity is how much your home is valued at versus how much you have left to repay on your mortgage. For example, if your home is valued at $300,000 and you only owe $100,000 on the mortgage, your equity is $200,000.
To get approval on a home equity loan, you must have a credit score over 620 and must have sizeable equity to make it worthwhile for the lender. Home equity loans typically have lower rates than other loans like credit card debt, but you risk your home as collateral if you default on the loan, so your home could be foreclosed on if you fail to make your payments. It is up to you if the risk is worth it.
Line of Credit
A line of credit comes from your bank or a private lender and works similarly to a low balance credit card. A line of credit is unique in that after the first cycle of using your borrowed money and then repaying that same amount, you can use that money again. It is essentially a rotating loan. The amount you repay can then be used again when necessary. However, this becomes an endless cycle if you do not change your spending habits. If you can confidently change your habits and use the credit to repay your loans and then pay it off, this is a great low interest option.
Friends and Family Loans
An often-overlooked option for debt consolidation is to reach out to a friend or family member who is willing to lend you money to get ahead of your debt. From friends and family, your interest may be minimal or nonexistent which will ease the burden of repayment as well. However, be careful that you stick to your repayment agreements or the next family gathering will be wildly uncomfortable and your social life may become a hateful pit of resentment.
Balance Transfer Credit Card vs. Debt Consolidation Loan
When looking into a balance transfer credit card and a debt consolidation loan, there are a few things to consider about each one.
Debt Consolidation Loan
APR: 2.99% to 46.99%
Payment Flexibility: Both long- and short-term options available, can miss payments periodically without sharp penalties
Fees: early payment penalty ranging from 1% to 5%, origination fee, or late payment fee
Payoff Time: 2-7 years usually
Balance Transfer Credit Card
APR: introductory is 0%, post-promotional rates range from 14.79% to 29.99%
Payment Flexibility: No flexibility, rigidly enforced monthly repayment schedule
Fees: Annual fee of between 0% and 3%
Payoff Time: 30-day repayment schedule
In the end, debt consolidation loans are better for those with multiple types of debt such as credit cards, student loans, and outstanding bills. A balance transfer credit card is the better option if you have a high amount of debt on a high APR card. The balance transfer credit card offers a quick fix in this case with its very low or non-existent interest rate within the promotional period, so long as you pay it off within that period before your rates skyrocket.
Debt consolidation loans are definitely not for everyone. They can only help you if you’re committed to changing your spending habits and can make your monthly payments reliably. If you’ve filed for bankruptcy, debt consolidation is not a good option worth your consideration.
On the other hand, for people committed to improving their financial health, debt consolidation makes your debt easier to manage, easier to repay, and helps you improve your credit score faster. With good discipline and patience, you can easily climb your way out of debt with a consolidation loan.