How to Consolidate Credit Card Debt

Managing multiple credit card payments can feel like an uphill battle. Between high interest rates, mounting balances, and juggling a host of different due dates, you might feel as though you’re struggling to reduce your debt, no matter how hard you try. 

If that sounds familiar, you’re far from alone - credit card debt is one of the most common financial challenges facing Canadians today.

That said, one proven way to simplify your finances and reduce interest costs is to consolidate your credit card debt. By combining multiple debts into one manageable payment, you can lower your stress, improve your money habits, and start building from a stronger foundation.

This guide explains how credit card consolidation works in Canada, the main methods available, their pros and cons, as well as the potential alternatives out there today. 

What Is Credit Card Debt Consolidation?

Debt consolidation means combining at least two separate debts — often high-interest credit cards — into one new loan or payment plan, with a lower combined interest rate. That means instead of managing multiple payments each month, you make just one.

The purpose of debt consolidation is to make your debt more manageable, while at the same time allowing you to save money on interest so that you can hopefully pay it off faster. 

It can also help protect your credit score by reducing the chance of missed payments and improve your overall financial stability by giving you some control back over your money.

Key benefits of consolidating credit card debt:

• Lower overall interest rate
• One predictable monthly payment
• Easier budgeting and planning
• Less stress managing multiple creditors
• Potential to improve credit over time

Methods of Consolidating Credit Card Debt in Canada

There are several ways to consolidate credit card debt, depending on your financial situation, credit score, and goals. Here’s a look at how the most common methods work.

Debt Consolidation Loan

A debt consolidation loan is a personal loan used to pay off multiple high-interest credit cards at once. You make a single monthly payment, hopefully at a lower interest rate than your credit cards, which should save money and simplify your budgeting each month.

In Canada, these loans are offered by banks, credit unions, and many online lenders. Terms typically range from 12 to 60 months, and approval will depend on your credit score, income, and current debt levels. 

Eligibility:

Lenders will look at your credit score, income, and debt-to-income ratio to decide whether you qualify, and at what rate. Higher credit scores will translate to more competitive rates, but it always helps to take the time to shop around, even if you feel like your options might be limited.

It’s also important to compare any offers available to you carefully. Even a slightly higher Annual Percentage Rate (APR) could be worthwhile if the loan comes with flexible repayment terms or allows you to pay off your debt early without penalties.

Debt consolidation loans typically work best for people with a decent credit score and steady income who can commit to a structured repayment plan. 

Balance Transfer Credit Cards

A balance transfer credit card lets you move existing credit card balances to a new card that has a lower interest rate, or potentially even 0% for a set period — usually 6 to 12 months. 

To maximize savings in this way, you can focus on paying off as much as you can during the promotional period, if there is one. Avoid new purchases on the card, and make every payment on time.

On the other hand, you’ll want to watch out for transfer fees, which typically come in around 2–3% of the balance, plus whatever standard interest rate that applies once the intro period ends. 

With careful planning, a balance transfer card can be a useful tool for getting ahead on credit card debt.

Home Equity Loans or HELOCs

If you own a home, you may be able to use your home equity — the difference between your home’s value and your mortgage balance — to consolidate high-interest credit card debt.

A home equity loan provides a lump sum with a fixed rate, while a home equity line of credit (HELOC) offers revolving credit with variable interest.

Because these loans are secured by your property, interest rates are typically much lower when compared to credit cards. However, the risk is significant, as the equity you hold is typically considered collateral. 

This option suits homeowners with substantial equity, stable income and a decent credit score who are confident in their ability to repay their managed debt.

Debt Consolidation Through a Line of Credit

A personal line of credit from a bank or credit union can also be used to pay off multiple credit cards. You borrow what you need (up to a set limit), pay interest only on the amount used, and make flexible repayments.

Interest rates are often lower than credit cards, but higher than secured loans. You’ll generally need good credit to qualify.

This method offers flexibility, but requires discipline — if you continue to use your cards or make only minimum payments, your debt is likely to grow rather than reduce.

Is Debt Consolidation Right for You?

Debt consolidation isn’t a one-size-fits-all solution. 

It’s generally a good idea if you have a stable income, a fair to good credit score, and can find a lender that allows you to qualify for a lower interest rate. You should also be ready to commit to a repayment plan to make the strategy effective.

On the other hand, debt consolidation might not be the right choice if you’re still regularly accumulating credit card debt, have a low credit score that limits your options, or aren’t quite sure if you have the funds to make consistent payments.

Questions to ask before consolidating:

• Will this actually lower my interest rate?
• Can I realistically afford the new monthly payment?
• Am I ready to stop using credit cards while paying this off?
• Do I understand all the fees and terms involved?

Alternatives to Debt Consolidation

If consolidation doesn’t seem like the right fit, other debt relief methods could help you regain control of your debt.

Credit Counselling and Debt Consolidation Programs

Credit counselling services, like those offered by Credit Canada, can help you explore your debt relief options without taking on new loans.

Through a Debt Consolidation Program (DCP or often referred to as a Debt Management Plan), your credit counsellor works directly with creditors to reduce or eliminate interest and combine your unsecured debts into a single monthly payment.

Because Credit Canada is a non-profit organization, our guidance is focused on your best interests — not on selling financial products or advice.

Consumer Proposals

A consumer proposal is a legally binding agreement arranged through a Licensed Insolvency Trustee (LIT), who negotiates with creditors on your behalf. It allows you to negotiate paying only a portion of your debt over a set period, usually three to five years, immediately ceasing any collection activity. 

This option is particularly suited if you find that you don't qualify or are unable to pay off all your debts through any of the consolidation options, but want to avoid bankruptcy. Unlike bankruptcy, a consumer proposal lets you keep your assets, such as your home or car, while repaying creditors on terms you can manage.

Filing a consumer proposal does impact your credit rating, however, but typically less severely than bankruptcy. 

Bankruptcy as a Last Resort

Bankruptcy is the final option when no other solutions are viable. It can eliminate most unsecured debts, including credit card balances, but it comes with serious long-term consequences.

For example, bankruptcy stays visible on your credit report for several years, and may even affect your ability to borrow or rent in the future once that period has passed. Always try to explore other routes first, and be sure to speak with a credit counsellor before making a decision on bankruptcy.

Common Mistakes to Avoid When Consolidating Debt

Even with the best intentions, borrowers can sometimes end up deeper in debt after making the move to consolidate. 

When consolidating debt, it’s important to avoid taking on new debt while still repaying your consolidation loan, as this can easily (and quickly) undermine all your progress. And pay close attention to the fine print on balance transfer offers to ensure you understand fees, promotional periods, and interest rates once that promotional rate ends.

Choosing a consolidation method that doesn’t truly meet your needs can leave you worse off in the long term, which is why it pays to take the time to compare your options carefully.

Finally, missing payments on your new loan or credit line can lead to penalties and further damage to your credit score, so be sure it’s something you can commit to.

Red flags to watch for:

• Lenders charging unusually high “processing” or “administration” fees
• Third-party lenders offering unreasonably higher interest rates
• Pressure to sign before reviewing all terms
• Promises of guaranteed approval regardless of credit
• Offers that require upfront payments

If something feels off, consult a trusted financial advisor or a certified credit counsellor before signing up for any debt consolidation product.

Steps to Successfully Consolidate and Stay Out of Debt

Improve Your Financial Habits

Consolidation gives you a fresh start, but lasting success comes from building healthy money habits. Create and stick to a realistic monthly budget that covers essentials, debt repayment, and your savings goals, however small, while paying off the debts and picking up the pace once your debts are paid off. Track your expenses to identify patterns, and use cash or debit instead of credit as much as possible.

Build an Emergency Fund

Unexpected costs can quickly undo your progress, so having an emergency fund built up is key to your success. Aim to save at least $100 to $200 per month in a dedicated account — or roughly 20% of your income if you can afford more. Over time, even a modest emergency fund can be enough to prevent you from relying on credit cards again.

Seek Professional Financial Help

If you’re unsure where to start, you don’t have to figure it out alone. Credit Canada’s certified credit counsellors can review your finances, explain your options, and help you create a personalized plan to become debt-free.

Our free, confidential consultations are available online or by phone, and can be the first step toward peace of mind and improved financial health.

Conclusion

Consolidating credit card debt can help reduce your financial stress, lower your costs, and help take back control of your money. 

Whether you choose a consolidation loan, balance transfer, or Credit Canada’s debt consolidation program, the key is to choose the best fit for your unique circumstances — and to stay committed once you start.

If you’re feeling overwhelmed or unsure where to begin, reach out to Credit Canada for no-cost, judgment-free advice. Our counsellors can help you find the best way forward to help manage your situation and take control of your financial future today.