
Juggling multiple debts, like credit card bills and personal loan payments, can be overwhelming. Despite your best efforts, you may still find yourself feeling like no matter how hard you try, your debts keep piling up.
If you’re feeling overwhelmed, you’re not alone. Millions of Canadians are navigating similar challenges, and there are trusted, effective solutions available.
Debt consolidation offers a way to simplify your unsecured debts by combining all of your bills into a single monthly payment, oftentimes lowering interest rates and leading to faster debt relief.
Debt consolidation has many benefits, but there are several strategies you can use, each with its own pros and cons. Here’s what you should know to choose the right debt consolidation strategy for you, to take control of your debt and find a clear path forward.
What Is Debt Consolidation?
Debt consolidation involves combining multiple obligations into a single payment. This makes it easier to budget and manage your debt, as you’ll only have to make a single monthly payment. With the right solution, you’ll also be able to reduce the total interest you pay over time.
There are several ways to consolidate your debt, including the following approaches:
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Debt Consolidation Program (DCP): Structured plans offered by credit counselling agencies (like Credit Canada!) that combine debts into one manageable payment.
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Debt consolidation loan: Unsecured loans to pay off existing debts.
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Balance transfer credit cards: Move multiple balances to one card with a lower rate.
Here’s a quick breakdown of each option and how it could impact your financial situation:
Requirements and Impacts |
Debt Consolidation Program (DCP) |
Debt Consolidation Loan |
Balance Transfer Credit Card |
Professional Support |
Yes, required by a non-profit credit counselling agency. |
Not required. |
Not required. |
Credit Impact |
Temporary negative impact on your credit score. Increases back after two years. |
Can be positive unless you incur new debt on existing cards. |
Can be positive but may involve a temporary score decrease. |
Does it Close Your Accounts? |
Yes |
No |
No |
Interest Rate |
Your credit counselling agency negotiates with creditors to reduce or eliminate your interest rate. |
Varies, but you may qualify for 0% interest for an initial period of 12 months or more. |
Varies, but you may be eligible for a 0% no-interest period. |
Cost to You |
Low monthly fee based on your debt amount and deposit. Most services are free with no upfront or hidden charges. |
Loan origination fees and interest on the amount borrowed. |
Balance transfer fee, which averages 3-5% of each balance. |
Minimum Debt Amount |
Any amount. |
Varies but typically $5,000 or more. |
Varies depending on your credit score and eligibility requirements. |
Typical Credit Score Requirements |
No minimum score requirements. |
Good credit score required. |
Very good credit score required. |
Before diving into our list of pros and cons of debt consolidation, it’s important to understand the basics of these three common options.
Debt Consolidation Program (DCP)
This is a program negotiated on your behalf by a non-profit credit counselling agency with your creditors. They’ll reach an agreement to make one regular monthly payment, typically reduces or eliminates interest, and establishes a repayment timeline.
Debt Consolidation Loan
These are personal loans provided by banks or credit unions, which you can use to pay off multiple existing debts. This leaves you with one monthly payment on the consolidation loan instead of multiple payments on the original debts. In this case, you are simply shifting your debt to a new structure, and may not benefit from lowered interest rates.
Balance Transfer Credit Cards
This is simply transferring the existing balance on one or more credit card to another. Balance transfer credit cards have high limits and usually include a grace period during which the balance doesn’t accrue interest, which can help you pay off your debt faster. The downside is that if you can’t pay off the balance during the grace period, you’ll be accruing interest on all of the debt you transferred to the card.
Pros of Debt Consolidation
Here’s a look at some of the key benefits of debt consolidation:
Simplifies Debt Repayment
Let’s say you’re juggling five different debt payments, each of which has a different due date. If any of those debts are credit cards, your monthly payment amount can vary as well. The result is a complicated budget.
Debt consolidation can make repaying what you owe much simpler, as you’ll only have one monthly payment and a fixed payment amount.
Simplifying debt payments reduces the risk of missed due dates and makes budgeting more straightforward. Combining all of your debt payments can also reduce the stress of keeping up with different due dates and amounts.
Potentially Lower Interest Rates
You may be able to reduce your interest rates with debt consolidation, especially if you’re consolidating high-interest credit card debts into a loan or DCP with a lower rate. Here’s a quick comparison to break down the difference:
Debt Type |
Balance |
Interest Rate |
Monthly Payment |
Credit Card A |
$5,000 |
18% |
$150 |
Credit Card B |
$3,000 |
22% |
$110 |
Total Before Consolidation |
$8,000 |
Average 19.5% |
$260 |
Debt Consolidation Loan |
$8,000 |
Estimate: 8.99% |
$199 |
In this example, consolidating two credit cards into a loan with an estimated 8.99% interest rate would reduce your monthly payment from $260 to $199 over four years.
Can Improve Credit Score Over Time
Debt consolidation in general can boost your credit score in the long run, as long you make consistent, on-time payments. Moreover, reducing your credit utilization ratio by paying off credit card balances can further raise your score.
However, it’s important not to continue using the credit cards after you pay them off. Doing so could leave you facing twice the amount of debt you had before taking out a consolidation loan.
On the other hand, if you enter into a Debt Consolidation Program, the credit counselling agency will typically contact the credit card companies who will close or suspend your accounts. Credit counsellors do this so they can negotiate the debt on your behalf. And, if your credit cards are restricted or closed, it will also eliminate the temptation to use them again.
Reduces Stress and Improves Financial Planning
Missing payments and feeling like you can’t keep up with your bills can be incredibly frustrating. Transitioning to a single, predictable payment can alleviate this stress and build a little breathing room into your budget.
If you’re working with a credit counselling agency like Credit Canada, you’ll also receive advice on how to improve your financial planning process. Our team doesn’t just assist with debt consolidation—we empower you with resources and strategies designed to help you get out of debt for good.
If you’re considering debt consolidation, Credit Canada is here to help. Contact us to speak to a counsellor today or use our new AI Agent Mariposa to do a digital debt assessment. Get started here!
Cons of Debt Consolidation
Consolidating your debt isn’t a magic solution that gets rid of all of your unsecured loan and credit card payments. While it’s a viable option for many people who are feeling overwhelmed by their debt, it can come with a few potential drawbacks, including the following:
May Not Save Money in the Long Run
Debt consolidation can lower your monthly payments. However, some programs extend the repayment term, which can result in you paying more interest over time. It’s crucial to calculate the total interest cost over the life of the debt consolidation solution you select, before proceeding.
A lack of savings is a big concern when using balance transfer credit cards. When you go this route, you won’t have fixed repayment terms. Instead, you’ll have a monthly payment that varies with your interest rate and balance. Even if you don’t add any other expenses to the card, it could take years to pay off the balance when making the minimum payments.
Credit Canada helps you understand the full cost of your debt—before and after consolidation—so there are no surprises.
Risk of Higher Interest Rates or Fees
Individuals who are exploring debt consolidation loans can face greater hurdles if they have lower credit scores or limited repayment histories. Consequently, lenders may impose high interest rates. In some cases, a borrower may not even be eligible to borrow enough to consolidate their debt.
If you do qualify to borrow enough, it’s still important to look out for hidden fees. Consolidation loans often charge origination fees, while balance transfer credit cards present transfer fees.
Fortunately, you can still qualify for Credit Canada’s DCP, even if your credit score isn’t as high as you’d like it to be. Our program charges a flat fee based on the total amount of your debt. You won’t encounter any surprise fees or elevated interest rates.
Requires Financial Discipline
Consolidation doesn’t eliminate your debt; it just restructures it. Without disciplined spending habits, there’s a risk of finding yourself in deeper debt than when you started.
Let’s say you take out a debt consolidation loan and pay off $15,000 in credit card debt. Your interest rate is lower, and you now have one fixed monthly payment. However, you also have three credit cards with no balance. If you find yourself in a financial crunch, you may be tempted to use those cards.
In the worst-case scenario, all three cards could end up maxed out again. If that were to happen, you would have $15,000 in credit card debt and a $15,000 loan to pay off.
Working with Credit Canada on a DCP still requires financial discipline. However, we can provide you with the resources and support you need to become debt-free.
Our credit counsellors offer valuable education on budgeting and sticking to your repayment plan. Additionally, your accounts will be restricted while we negotiate with your creditors, preventing you from racking up any more debt on those cards.
Can Impact Credit in the Short Term
Applying for new credit (i.e. a debt consolidation loan) can cause a temporary dip in your credit score due to hard inquiries. What’s more, closing old accounts after consolidation may shorten your credit history, which also factors into your score.
Credit Canada’s DCP can give you a clear view of the potential credit implications of consolidation. Our program involves closing some accounts, which can drop your credit score. However, you’ll ultimately reduce your total debt, which means your credit score can bounce back as you work through our program.
Is Debt Consolidation Right for You?
Debt consolidation may be a good fit for you if:
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You have multiple high-interest debts.
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You have a stable income.
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You find the right solution for your situation.
On the other hand, debt consolidation may not be a good option if you:
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Have a small amount of debt that can be managed through budgeting.
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Are unable to secure a lower interest rate.
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Are not ready to commit to financial discipline.
Before making your choice, it’s wise to consult a credit counsellor. Credit Canada offers free credit counselling so you can make an informed decision about dealing with your debt.
Alternative Debt Relief Options
If you don’t think debt consolidation makes sense for your situation, you may want to consider these strategies:
- Debt Settlement: Negotiating with creditors to pay a lump sum that’s less than what you owe.
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Credit Counselling: Working with a non-profit credit counselling agency to create a plan and receive financial resources and education.
- Budgeting: Implementing strict budgeting techniques like the snowball method to pay off your debt faster.
Alternative |
What It Entails |
Pros |
Cons |
Debt Settlement |
Negotiating with your creditors to pay a lump sum that’s less than what you owe or set up a repayment plan at a lower interest rate. |
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|
Credit Counselling |
Working with a certified credit counselling agency to receive financial education and improve your financial health. |
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|
Budgeting |
Using techniques like the snowball or avalanche method to pay off debt faster. |
|
|
Speaking to a Credit Counsellor is the best first step for everyone, as it helps you evaluate all of your options and choose the right path forward based on your unique financial situation.
For some, talking to a Credit Counsellor is the only step they need to take. If you have a small to moderate amount of manageable debt and the discipline to stick to a budget, a Credit Counsellor can help you navigate the journey to debt freedom.
How Credit Canada Can Help
At Credit Canada, we understand that juggling multiple debt payments can be overwhelming. With over 50 years of experience and having helped more than 2 million Canadians repay over $350 million in debt, we’re here to support you every step of the way.
Our Debt Consolidation Program offers a structured approach to combine your debts into a single, manageable payment without taking on a new loan. Our team will work with your creditors to set favourable repayment terms and extend the support you need to achieve lasting financial freedom.
If you’re considering debt consolidation or other relief options, contact us today by calling 1(800)267-2272 or do a digital debt assessment through our AI Agent, Mariposa.

Frequently Asked Questions
Have a question? We are here to help.
What is a Debt Consolidation Program?
A Debt Consolidation Program (DCP) is an arrangement made between your creditors and a non-profit credit counselling agency. Working with a reputable, non-profit credit counselling agency means a certified Credit Counsellor will negotiate with your creditors on your behalf to drop the interest on your unsecured debts, while also rounding up all your unsecured debts into a single, lower monthly payment. In Canada’s provinces, such as Ontario, these debt payment programs lead to faster debt relief!
Can I enter a Debt Consolidation Program with bad credit?
Yes, you can sign up for a DCP even if you have bad credit. Your credit score will not impact your ability to get debt help through a DCP. Bad credit can, however, impact your ability to get a debt consolidation loan.
Do I have to give up my credit cards in a Debt Consolidation Program?
Will Debt Consolidation hurt my credit score?
Most people entering a DCP already have a low credit score. While a DCP could lower your credit score at first, in the long run, if you keep up with the program and make your monthly payments on time as agreed, your credit score will eventually improve.
Can you get out of a Debt Consolidation Program?
Anyone who signs up for a DCP must sign an agreement; however, it's completely voluntary and any time a client wants to leave the Program they can. Once a client has left the Program, they will have to deal with their creditors and collectors directly, and if their Counsellor negotiated interest relief and lower monthly payments, in most cases, these would no longer be an option for the client.