Debt Consolidation Loan

What is a debt consolidation loan?

A debt consolidation loan is when you take all of your high-interest loans and consolidate them into one larger loan. You receive the cash to pay off your credit cards, and then you simply have one payment to make on your consolidation loan.

The minimum payments on your debt consolidation loan will typically be much lower than the combined minimum payments you are making on your other debt – so if getting to the end of the month financially is a struggle, you can have more money left over. Or, if you can afford to keep making the same payments that you are making right now, then you will be able to get out of debt much more quickly.

In some cases, a debt consolidation loan will actually help you lower your monthly payments AND get out of debt faster.

Why are Debt Consolidation Loans Becoming So Popular?

Many Canadians today are saddled with large amounts of consumer debt. They may have outstanding student loans, CRA tax arrears, or credit card debt. Often those struggling with debt are embarrassed about their situation. They feel like they should have been more responsible with their money.

But the fact is, that many Canadians find themselves in this situation because of circumstances beyond their control – a job loss or an illness for example. But whatever the reason you are in debt, getting out can sometimes feel like an impossible task.

Large amounts of high-interest debt and multiple monthly payment obligations can be incredibly overwhelming, and it might seem like you have no way to get out of the situation. Trying to manage multiple monthly payments and scheduling your income accordingly can be difficult and cause a lot of stress. We understand that you want to get out of debt – you don’t want to have to keep making these payments so it’s important to find a way to make the debt go away for good. You can do this with a debt consolidation loan.

How a consolidation loan can help you get out of debt

A debt consolidation loan can help you pay off your debt for good with one, easy to manage monthly payment. It’s far easier to schedule one payment than several different credit cards and other payments. There is less risk of forgetting a payment – something that can be damaging to your credit score. We can even help you to set up this payment to be automatic, so there is literally no work on your part other than ensuring you have sufficient funds in your account.

Additionally, very often when you get a debt consolidation loan, your overall interest rate is usually much lower. This means that you may be able to get out of debt months or even years sooner.

As you pay off your debt and lower your debt to income ratio, you will also be improving your credit score. This can be a big bonus in future years when you might be looking to get a mortgage, a car loan, business loan, etc.

How to get a debt consolidation loan

When looking into a consolidation loan, one of our agents will sit down with you and tally up all of your debts. This could include student loans, credit cards, unsecured lines of credit and other personal loans – including car loans.

From there, consolidating means bringing all those debts together into one loan for the total amount you owe. Now, it is important to understand that a consolidation loan doesn’t erase all of your debt – it still needs to be paid.

What the consolidation loan does do is it makes the existing debt you have easier to manage. Consolidation loans often offer much lower interest rates than what you would experience with credit cards or lines of credit.

These loans also offer an end date for when all your debt will be paid off. Consolidation loans are often amortized over 3, 4 or 5 years. They can be paid off over a longer period of time if the amount of debt you have is very large or if you are looking for smaller monthly payments that are more manageable.

Should I Consolidate ALL of my Loans?

In many cases, the answer to this question is yes. Consolidating your debt makes paying off your loans easier, more convenient, and less expensive.

The exception to this rule would be if you have a particular loan that has a very low interest rate – an interest rate that the consolidation loan can’t beat. In this situation, you are better off financially, to keep that particular loan separate.

Types of debt consolidation loans

When clients are looking for a consolidation loan, there are two kinds of loans they can get: secured and unsecured. Like with other kinds of lending, a secured loan can provide a much lower interest rate and other favourable lending terms. Typically, a secured loan will involve borrowing against your home equity in the form of refinancing or a second mortgage.

An unsecured loan means you don’t have to put up any kind of collateral against the loan, but you may get a slightly higher interest rate or a higher monthly payment to pay it off quicker.

When deciding on the type of debt consolidation loan that is best for you, it is a good idea to sit down with a mortgage broker who can review your situation and determine which type of loan would be most beneficial.

But so you have a better understanding of the main types of debt consolidation loans that are available, here is an overview:

  • Mortgage Refinancing:

    This is where you break your current mortgage and get a new one for a higher total amount. The added amount is money that is borrowed from your home equity and given to you in cash in order to pay off your other debts. You then just make the payments on your new mortgage. The advantage of mortgage refinancing is that this option usually has the lowest interest rate of all the options. This disadvantage is that you will have to pay a financial penalty in order to break your first mortgage. This is why it is a good idea to have your mortgage broker run some calculations before choosing this option.

  • Second Mortgage:

    This is where you keep your current mortgage but you get an additional mortgage by borrowing from your home equity in order to pay off your other debts. When you have a second mortgage, you will make payments on it just like you do with your first mortgage. With this option, you will likely have to pay a higher interest rate than you would with mortgage refinancing however, you will not have to pay a financial penalty because you are not breaking your mortgage. ​

  • Unsecured debt consolidation loan :

    TUnlike the first two options, an unsecured debt consolidation loan is not tied to the equity in your home. You are simply getting a loan from a new creditor in order to pay off your other creditors. Because unsecured loans are considered more risky to the lender than secured loans, this option will have the highest interest rate of the three. That being said, it is still well worth it if it enables you to get out of debt more quickly. This option is best for those that do not own their own home, or who do not have sufficient equity in their home to consolidate their debt through a second mortgage. It can also be a good solution for those who simply do not feel comfortable using their home as collateral. ​

Which debt consolidation loan option is best for me?

In most cases, if you are a homeowner then mortgage refinancing or a second mortgage will generally be recommended. A second mortgage is usually the better choice if your mortgage renewal date is still some time away. If you are close to your mortgage renewal date however, a mortgage refinance may be the better option. Your mortgage broker can run the necessary calculations to help you determine this.

If you do not own your own home, or if you do not have enough equity, then your only option for debt consolidation is to get an unsecured loan. Even in this case however, you can be assisted by a mortgage broker.

Benefits of debt consolidation loans

One of the biggest benefits of a consolidation loan is that have a set payment amount, with a fixed interest rate, so you know at the end of your term, your loan is completely paid off. You cannot, unlike other kinds of credit, keep borrowing against the loan – it is not revolving credit. But that works in your favour as you know your debt will be paid off.

It is also easier to budget when using a consolidation loan as the amounts do not change. The lender will work out your installment payments so you always know exactly how much the payment will be.

Are there any drawbacks to getting a debt consolidation loan?

If you are trying to get out of debt, then getting a debt consolidation loan is one of the best things that you can do for yourself. The benefits far outweigh any drawbacks.

We do however, have one word of caution for you. If the reason that you got into debt in the first place was out of control spending, then it is vitally important that you work on a budget so that you don’t get yourself into credit trouble again.

You only have so much equity in your home that you can borrow from. Use this opportunity wisely so that you do not end up in a potentially worse situation than you were in before.

Why work with a mortgage broker to get a debt consolidation loan?

Most people, when they think of mortgage brokers think about professionals who can help them get a loan to purchase a house. But many mortgage brokers can actually assist with other types of loans as well – including debt consolidation loans.

While financial institutions such as banks and credit unions can also do this, they can only offer the products offered by their own organization. This limits your options and you may not get the best solution for you.

But mortgage brokers work with a wide network of lenders, so they have more freedom to customize a debt consolidation solution for you. They will shop their network of lenders on your behalf in order to help you get the best possible interest rate. Remember, the lower the interest rate on your debt consolidation loan, the faster you can get out of debt!

Mortgage brokers also have a lot of experience in helping their clients decide between options such as mortgage refinancing and second mortgages. They have specialized software that they can use to determine which option is more affordable (because the answer is not the same for everyone!).

And finally, a mortgage broker can act as a liaison between you and the lender helping to ensure that all the necessary forms are filled out correctly in order to avoid any unnecessary delays in getting your money.

A mortgage broker is there to answer all of your questions so you can feel confident that you are making the right choice.

Contact us today

We work with dozens of lenders, some of whom specialize in offering clients debt consolidation loans. Getting out of debt can be very difficult, for anyone, and we know it can be hard to ask for help in paying it back. We are here to work with you and get you the loan on the terms and payments that will work for you, so you know exactly when you will be out of debt.

We also work with clients who have a poor credit history and who are looking to clear up debt so they can repair their credit score. And a debt consolidation loan can help you with that too. Let’s work together to get you permanently out of debt with one, easy to manage monthly payment. Book your consultation today!

Debt Consolidation FAQ's

Each consolidation loan, like everyone’s financial situation, is unique. There isn’t an upper limit on how much debt can be consolidated, but we do have to work together to make sure the amount is affordable for you and the terms can be met. Book an appointment today to discuss your options!

Not all consolidation loans have to be secured against an asset, you have options to make sure what you’re doing is right for you and you’re comfortable with it. We do not want to give you a consolidation loan you aren’t ok with. Give us a call today to speak with one of our agents.