Debt Consolidation Options Overview
| Option | Typical Rate | Best For |
|---|---|---|
| Home equity (HELOC) | 6-9% | Homeowners, largest savings |
| Personal line of credit | 8-13% | Good credit, flexibility |
| Personal loan (bank) | 8-15% | Good credit, fixed payments |
| Personal loan (online) | 10-20% | Fair credit |
| Balance transfer card | 0% (promo) | Small amounts, quick payoff |
| Credit union loan | 10-20% | Fair credit, relationship |
| High-interest loan | 20-35%+ | Poor credit (last resort) |
Best Debt Consolidation Loans by Credit Score
Excellent Credit (750+)
| Lender | Rate | Amount | Term |
|---|---|---|---|
| Big 5 Banks (personal loan) | 8-12% | $5,000-50,000 | 1-5 years |
| Personal line of credit | 7-10% | $5,000-50,000 | Revolving |
| HELOC (homeowner) | 6-8% | Up to 80% home equity | Revolving |
Good Credit (680-749)
| Lender | Rate | Amount | Term |
|---|---|---|---|
| Bank personal loan | 10-15% | $5,000-35,000 | 1-5 years |
| Online lenders (Borrowell, Mogo) | 12-18% | $1,000-35,000 | 1-5 years |
| Credit union | 10-15% | $1,000-25,000 | 1-5 years |
Fair Credit (600-679)
| Lender | Rate | Amount | Term |
|---|---|---|---|
| Credit union | 15-22% | $1,000-15,000 | 1-4 years |
| Online lenders | 15-25% | $1,000-25,000 | 1-5 years |
| Fairstone | 20-30% | $500-25,000 | 1-5 years |
Poor Credit (Below 600)
| Option | Rate | Notes |
|---|---|---|
| Secured loan | 15-25% | Need collateral |
| Credit counselling DMP | 0-8% | Not a loan, but lowers rates |
| Consumer proposal | N/A | Pay less than you owe |
| Bankruptcy | N/A | Last resort |
How to Apply for a Debt Consolidation Loan
Step 1: Calculate What You Need
| Current Debt | Balance | Interest | Monthly Payment |
|---|---|---|---|
| Credit Card 1 | $8,000 | 19.99% | $240 |
| Credit Card 2 | $5,000 | 21.99% | $150 |
| Store Card | $2,000 | 28.99% | $80 |
| Total | $15,000 | Avg: 22% | $470 |
Step 2: Shop and Compare
| Compare | What to Look For |
|---|---|
| Interest rate | Lower than current average |
| Total cost | Not just monthly payment |
| Fees | Origination, prepayment |
| Term length | Shorter = less interest |
| Monthly payment | Must be affordable |
Step 3: Apply
| Requirement | What You Need |
|---|---|
| Income proof | Pay stubs, tax return |
| ID | Government-issued |
| Debt list | All accounts and balances |
| Credit check | Lender will pull report |
Step 4: Pay Off Old Debts
| Action | Why |
|---|---|
| Use funds to pay off accounts | Immediately upon receiving loan |
| Close accounts (optional) | Prevent re-accumulating debt |
| Monitor credit report | Ensure accounts show paid |
Consolidation Loan Calculator
Example Scenario
| Current Situation | Consolidation Loan |
|---|---|
| Total debt: $15,000 | Loan: $15,000 |
| Average rate: 22% | New rate: 12% |
| Monthly payment: $470 | New payment: $334 |
| Time to pay off: 4+ years | New term: 5 years |
| Total interest: $7,500+ | New interest: $5,040 |
| Savings | $2,460+ |
HELOC for Debt Consolidation
How It Works
| Feature | Details |
|---|---|
| Rate | Prime + 0.5-2% (~7-9%) |
| Maximum amount | Up to 65-80% of home equity |
| Repayment | Interest-only available, or principal + interest |
| Risk | Home is collateral |
Pros and Cons
| Pros | Cons |
|---|---|
| Lowest interest rates | Home at risk if you default |
| Large amounts available | May encourage more borrowing |
| Interest-only option | Easy to get into more debt |
| Tax considerations | Interest not deductible (personal use) |
Balance Transfer Credit Cards
Good For Small Amounts
| Feature | Typical Terms |
|---|---|
| Promotional rate | 0% for 6-12 months |
| Transfer fee | 1-3% of amount |
| After promo | 19-22% |
| Credit needed | Good to excellent |
How to Use Effectively
| Strategy | Action |
|---|---|
| Calculate payoff timeline | Can you pay off before promo ends? |
| Divide by months | Monthly payment = balance Γ· months |
| No new purchases | Interest applies to new purchases |
| Set reminders | Know when promo ends |
Avoiding Common Mistakes
| Mistake | Better Approach |
|---|---|
| Extending payments too long | Choose shortest affordable term |
| Not closing old accounts | Close or freeze cards to prevent re-use |
| Getting new credit | Wait until consolidation loan paid off |
| Only looking at monthly payment | Calculate total interest cost |
| Ignoring the cause | Address spending habits |
When Debt Consolidation Doesn’t Make Sense
| Situation | Better Alternative |
|---|---|
| Can’t qualify for lower rate | Credit counselling DMP |
| Will likely run up more debt | Address spending first |
| Debt is too high | Consumer proposal |
| Barely affording minimums | May need insolvency options |