Debt consolidation: who can benefit?


Debt consolidation is often the first solution offered to people who want to reduce their monthly payments on their debts. Debt consolidation saves interest and has only one payment to make to a single creditor.

How does debt consolidation work?

The basic premise behind a debt consolidation is to combine several debts into one. This is possible by obtaining a consolidation loan from a bank or financial institution.

The Consolidation Loan will allow you to repay all of your high-interest debt at once: credit cards, lines of credit, personal loans, and so on. Once these debts are repaid, it is important that you close your accounts to avoid re-debt. Closing your accounts is often a condition of the consolidation loan.

Take the fictional example of Jean who has several debts and wants to make a debt consolidation:


Debt Balance Interest rate Monthly payment Time required to repay Paid interest
Credit card # 1 $ 5,000 19% $ 180 3 years 1 month $ 14,952
Credit card # 2 $ 10,000 19% $ 230 6 years 3 months $ 7,071
Line of credit $ 24,000 12% $ 500 5 years 6 months $ 8,856
Personal loan $ 18,000 10% $ 385 5 years $ 4,900
Total $ 57,000 13.2% $ 1,295 6 years and 3 months $ 35,779


Debt Balance Interest rate Monthly payment Time required to repay Paid interest
Consolidation $ 57,000 10% $ 1,211 5 years $ 15,665

We note that a debt consolidation would allow Jean to save $ 20,114 in interest, pay off his debts faster and all with a slightly lower monthly payment.

When is debt consolidation beneficial?

Debt consolidation is not necessarily a win-win solution. Here are several signs that a debt consolidation would be appropriate in your case:

  • You have several unsecured debts (credit cards, lines of credit, etc.)
  • Interest rates on your debts are high (over 15%)
  • You have difficulty making your monthly payments on your debts

What are the criteria for being eligible for debt consolidation?


Since debt consolidation is a loan of money, you have to be eligible for a financial institution or bank. The following criteria are generally required:

  • You must have a good credit score
  • You must have a job and stable income
  • You must have an endorser in some cases

What if I am denied debt consolidation?

If your bank or financial institution refuses you a consolidation loan, you still have several options in front of you.

The first option to consider would be the consumer proposal. This solution allows you to offer a partial repayment of your debts to your creditors over a period of up to 60 months. For example, if you have $ 30,000 in debt, you could offer to repay $ 15,000 over 60 months, or $ 250 a month. To make a consumer proposal, you must consult an Insolvency Trustee.

If the consumer proposal is not accepted, but you have equity available on your property, you could qualify for a home equity line of credit. This is a line of credit guaranteed by your property (house, condo, etc.). The interest rate on such a margin is interesting, but make sure you can make the payments, otherwise you could put your property at stake.

Finally, your last resort remains bankruptcy. By declaring a personal bankruptcy, you erase all your debts (except for certain non-dischargeable debts such as fines imposed by the Court). Bankruptcy is your right to a second chance.