The Ultimate Guide to Debt Consolidation in Canada

By Arthur Dubois | Published on 12 Jan 2023

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    Debt consolidation could be the answer you’re looking for. Are you struggling to keep track of multiple debts and their payments? Are you constantly paying interest on your credit card but and balance never comes down? Debt consolidation eliminates the never-ending headaches and can help you to pay down your debts faster. In some circumstances, you can even negotiate lower interest rates to save money in the long run. But what exactly is debt consolidation and what’s involved?

    What is debt consolidation?

    When you consolidate your debts, you essentially move multiple unsecured debts onto one credit account, like a personal loan for example. Wondering what an unsecured debt is?

    It’s any loan where you don’t need to put down collateral as security for the lender in order to borrow the money. For example, credit card debt is unsecured debt, but a mortgage is secured with a house and a car loan is secured with a vehicle.

    By combining multiple balances into one debt account, it’ll be much easier to manage payments. In most cases, you can also strategically shop around for a low-interest rate, allowing you to pay down the principle rather than an ever-increasing pile of interest. 

    Looking into debt consolidation?

    You might be overwhelmed by all of the different options, especially since they can vary from province to province. Fortunately, we’ll be walking you through all of your different options, empowering you to make the best choice based on your situation.

    Should I consolidate my debt?

    There are several reasons why you might strategically decide to consolidate your debt. First, if you have a few high-balance credit accounts and are struggling to make payments on time, debt consolidation can help to prevent missed payments, damage to your credit score, and higher interest charges. If you find yourself in this situation, you may also want to look into automating your bill payments — this simple process can save you a lot of stress and money!

    Struggling to pay off a big balance because of high-interest charges?

    Debt consolidation often involves renegotiating your interest rates, so it may be the perfect solution. However, make sure to carefully weigh your options beforehand.

    While some debt consolidation options may knock your interest rate to 0%, others do not offer significant interest rate reductions. It depends on the lender, the status of your account, and your financial situation.

    A quick word of warning

    Although consolidating your debt is a great strategy to simplify your debt repayment journey, it won’t fix poor financial habits.

    We highly recommend starting your debt consolidation journey by making a budget to ensure that you can make all of your payments. As a bonus, you’ll build strong financial habits.

    While it can be tough to stick to your budget at times, it’ll make debt repayment much easier and any good habits that you develop can drastically improve your financial situation afterwards.

    If you can’t successfully manage your money, you’ll almost certainly find yourself in debt again—even if you manage to pay your current lenders back right now. Making a budget shouldn’t be hard or overwhelming either. You can make a budget with Hardbacon quickly and easily without breaking a sweat.

    What are my debt consolidation options?

    If you’ve decided to consolidate your debt, you have a few choices. Typically, you’ll either apply for a debt consolidation loan, take advantage of a low-interest credit card or a balance transfer offer, or enroll in a Debt Consolidation Program (DCP).

    When comparing your options, it’s important to weigh interest rates, extra fees, and additional circumstances, like the impact on your credit score, in order to find the best solution for you.

    Taking out a debt consolidation loan

    One of the most common debt consolidation options is taking out a personal loan from a bank or private lender that is then used to pay your existing creditors.

    While a consolidation loan might seem appealing at first — you have a trusted institution supporting you, you can get creditors off your back, and you only have to worry about one lending account going forward — it isn’t always the best choice. 

    For starters, you may find it hard to secure such a loan. Lenders will generally take your credit score into consideration when deciding if they will provide you with a debt consolidation loan. If you’re in a position where you have to apply for such a loan, chances are that your credit score has dropped making it far more difficult to qualify.

    While all that effort might be worth it for a lower interest rate that can save you money in the long run, debt consolidation loan interest rates are not always competitive, especially if you have a low credit score, which makes you a riskier client.

    Sometimes, you are better off with your bank

    In some cases, your debt consolidation loan’s interest rate might even be comparable to what your existing creditors are charging, negating the potential savings associated with debt consolidation.

    As if that weren’t enough, banks and certain private lenders can be harder to work with. Generally, you can haggle with individual creditors, like your credit card provider, when you’re having financial difficulty, potentially leading to a lower interest rate.

    In some cases, even eliminating the interest rate altogether or extending your payment due date if an unexpected expense has popped up. On the other hand, banks and similar private lenders are notoriously difficult to sway about interest rates.

    A simple call can prevent furthur damage

    If an emergency prevents you from making your payment on time, always call your creditors to explain the situation before you miss the payment. Banks and other creditors have tools to help customers stay on track and offer some relief. No one wants your account to go into a delinquency status. They may not be able to adjust your interest rate but they may be able to help you protect your credit score with a payment arrangement.

    With that all being said, it is worth shopping around when looking at your debt consolidation options. If you can find a bank or a private lender that offers a low interest rate and the monthly payment is well within your budget, a private loan may be an excellent choice!

    Ultimately though, it’s important to understand the potential drawbacks, verify that you can afford the payment, and ensure that the interest rate is competitive.

    A debt consolidation loan from a traditional or alternative lender is easier to get as soon as your debt becomes stressful before you miss a payment to any of your creditors.

    Consolidating debt via credit cards

    If you have relatively few debts and a low-interest credit card or a good credit score, you might want to consolidate your debt by paying everything down via credit card, then focusing your efforts on paying down the card. Right off the bat, we want to emphasize that you must have a low- or no-interest card for this to work. If you shift your debt onto a credit card with a 19.99% annual interest rate, you will end up paying far more in the long run.

    Ideally, we recommend taking out a credit card with an introductory 0% interest offer, then shifting all of your debts onto this card if you can. However, that may not be possible if you have a low credit score. In that case, you may wish to consolidate your debt onto an existing low-interest credit card, especially if you can’t secure a debt consolidation loan. Keep in mind that any time you carry a credit card balance more than 30% of the limit, like more than $500 on a card with a $1,500 limit for example, starts to hurt your credit score. Make sure you can start to reduce the balance as quickly as possible.

    Because introductory credit card interest rates are only applicable for a short period of time usually around 6 to 9 months, and credit card limits are relatively low, consolidating your debt via credit card only really works for low balances that you can repay in the short-to-medium term. If you aren’t sure that you’ll be able to repay the balance before the introductory rate ends, you may be better off choosing a different option for debt consolidation. 

    BMO Preferred Rate Mastercard®*

    Annual Fee: $20

    Balance Transfer: 12.99%

    Introductory rate: Get a 0.99% introductory interest rate on Balance Transfers for 9 months with a 2% transfer fee and we’ll waive the $20 annual fee for the first year.†

    Debt Consolidation Programs 

    The final avenue for debt consolidation? Enrolling in a Debt Consolidation Program (DCP), like Consolidated Credit. Those are sometimes called Credit Counselling Programs. DCPs are similar to a debt consolidation loan from a bank or private lender in that the DCP provider will consolidate your different balances into a separate lending account with its own interest rate.

    This is usually a last resort because a DCP could prevent you from accessing new credit while you’re in the program, and even for a period of time after successful completion in some cases.

    However, DCP providers are non-profit organizations and generally have your best interests at heart: they are usually more flexible than banks or private lenders and may negotiate with your creditors to potentially lower your balances.

    Some provinces have also created additional DCP programs and regulations that are helpful in your quest to eliminate debt.

    A quick word of warning

    Although DCP providers are generally non-profits, they don’t always have your best interests in mind. Some DCP providers are funded by lenders with the goal of getting as much money out of borrowers as possible.

    For example, these DCP providers may refuse to negotiate with your creditors so you’ll have to pay back the entire principle. This isn’t to say that all DCP providers are harmful. On the contrary, they are usually a great option for debt consolidation. Just be prepared to shop around for different interest rates and discounts.

    Similarly, keep an eye on whose interests the DCP providers seem to prioritize; yours or the creditors. If you have friends or family that have previously relied upon a DCP for debt relief, ask them about their experience with the provider.

    It’s especially worthwhile to ask if their principal was lowered. You should also search for customer reviews and check the Better Business Bureau (BBB) to help find a quality DCP and avoid a less ideal one.

    As we mentioned above, a few Canadian provinces have their own additional DCP regulations. Wondering if your province has any additional benefits that you might be able to take advantage of, or restrictions that you should look out for? Keep reading for all the details.

    British Columbia

    Although British Columbia does not have any provincial regulations for DCPs, they recently passed a law that requires any lenders, excluding banks, who charge an annual interest rate over 32% to be regulated by Consumer Protection BC. Regulated lenders must provide borrowers with additional rights and all loan agreements must be clear. 

    While we would never recommend taking on a debt consolidation loan with a 32% interest rate, you can certainly find better deals by shopping around, you may wish to look further into your rights if you decide to enter into such an arrangement.


    If you live in Alberta and are hoping to consolidate your debt, you’re in luck! You won’t have to worry about credit score requirements or wading through a sea of providers to find a competitive interest rate.

    Alberta’s provincial government has created the Orderly Payment of Debts (OPD) program in conjunction with financial non-profit Money Mentors to help residents consolidate their debts. If you enroll in the program, Money Mentors will pay your creditors and you will pay the non-profit back.

    To sign up, you’ll just need to request a consolidation order from Alberta’s courts, a relatively simple process that does not involve a credit check.


    Quebec also offers its residents a helpful debt consolidation program. Though it is a bit more restrictive than traditional debt consolidation avenues, it can be a great option for anyone who is in way over their head. Especially if you’re afraid of losing your home or other seizable assets.

    Residents of Quebec can register for the province’s voluntary deposit program if they’re looking to consolidate their debt.

    After filing a motion to apply with Quebec’s courts, residents are required to pay a sizable amount of their income to the courts each month. In turn, the province distributes the funds to individual lenders.

    Although the voluntary deposit program requires sizable monthly payments, it will prevent lenders from seizing your Quebec-based assets or suing you as long as you continue to make payments.

    If you feel as though you’re drowning in debt and are afraid of losing your house, this can be a great way to protect yourself.

    Other provinces and territories

    At this time, none of the other provinces or territories have created significant debt consolidation regulations.

    However, any method of debt consolidation would allow you to benefit from federal debt collection regulations, which prevent lenders from threatening you, providing misleading information, pressuring your loved ones to pay your debts, and more.

    Frequently Asked Question about debt consolidation

    Still confused about debt consolidation? Wondering if it’s the right choice given your unique financial situation? Don’t worry. Debt consolidation can be confusing at first, especially if you’re trying to figure out how it will affect your other financial plans. To help ease your mind, we’ve put together a list of some of the most commonly asked debt consolidation questions.

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications