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Debt Consolidation Loans in Canada

Wondering how to get a debt consolidation loan? You’re not alone! We get a lot of calls from people asking about obtaining a debt consolidation loan in Canada. Although we don’t offer loans, we can tell you a lot about them—and how to consolidate your debt without one. Did you apply for a debt consolidation loan and were denied? We can also shed some insight on why that might have happened.

Discover Debt Consolidation Options

What Is a Debt Consolidation Loan and How Does It Work?

A debt consolidation loan is a debt repayment strategy. Once someone has been approved for a debt consolidation loan by a bank, credit union, or finance company, it’s used to merge multiple debts, or “consolidate” them, into a single debt. The borrower is then left with one monthly loan payment with a set interest rate.

Most often, a debt consolidation loan can only be used to pay off unsecured, high-interest debts, such as credit cards and payday loans. While it’s possible to find a lender who will include secured debt, such as a mortgage or auto loan, these types of debt tend to have comparatively low interest rates, so it wouldn’t make financial sense to include them in a Canadian debt consolidation loan.

Is a Debt Consolidation Loan Right for Me?

First, you should look at the individual interest rates you are currently being charged on your high-interest, unsecured debts. You want to make sure the debt consolidation loan has a lower interest rate than the average interest rate you are currently paying on your debts.

Next, determine if the debt consolidation loan amount is large enough to pay off all of your unsecured, high-interest debts at the same time. Otherwise, you’re still going to have multiple sources of debt and stress. You also need to be disciplined enough to avoid using the credit cards that you paid off, or you may find yourself back in debt in no time.Then you’ll have to make monthly payments on your credit cards on top of paying back the debt consolidation loan.

Does a debt consolidation loan make sense for you? Our free Debt Calculator shows you different debt repayment strategies and exactly how much money you could save in interest!

Try Our Debt Consolidation Calculator!


Advantages and Disadvantages of Debt Consolidation Loans

Here's a look at the pros and cons of consolidating your debt with a debt consolidation loan.


Credit unions and major Canadian banks, such as BMO, CIBC, RBC, TD, and Scotiabank all offer debt consolidation loans. When weighing the pros and cons of consolidating your debt with a loan, here are some of the benefits to keep in mind:

  • One Single Monthly Payment.This reduces the stress of remembering to pay multiple bills with multiple due dates.
  • A Lower Interest Rate. This is generally true, but always do your own due diligence to be sure it’s less than the average interest rate on your debts.
  • You Can Pay Off Debt Faster. With a lower interest rate, you’re paying more on the principal, which also allows you to pay your debt off faster. 
  • There Are No Fees. There are generally no additional charges when taking out a debt consolidation loan.



Debt consolidation loans can be difficult to obtain, and without proper money management and monthly budgeting skills, they may put you further into debt.

  • They Often Require Collateral. If you do not own property or assets, or cannot find a co-signer, you will probably be denied a consolidation loan from top-tier lenders.
  • You Need an Acceptable Credit Rating. Reputable businesses will not approve you without a credit check. If you have a low credit score, you will likely be denied or pay higher interest rates.
  • High-Interest Rates May Apply. High-risk borrowers may pay interest rates of 14% to over 30% among second-tier lenders, which can do more harm than good.
  • They Can Lead You Further Into Debt. Many people continue using the accounts they’ve paid off, in addition to having to pay back the new debt consolidation loan, resulting in more debt.

Why Was My Debt Consolidation Loan Rejected?

Were you rejected for a debt consolidation loan? It happens more often than you think. These are the three most common reasons why a debt consolidation loan is denied:

  1. Bad Credit. No surprise here. If your credit is poor, lenders will be afraid that you won’t be able to make payments on your new loan. If you have bad credit and they do offer you a loan, it will likely come with a sky-high interest rate.

  2. Low or No Income. If you’re unemployed, or working but not making top dollar, lenders will likely turn you down for fear that you will be unable to honour your commitment to pay back the loan on time.

  3. High Debt. You may have good credit and a good income, but if your debt is too high a lender may think that you’ll have trouble managing your payments. This is based on your Debt-to-Income (DTI) ratio (how much you owe versus how much you earn).

There are other Canadian debt solutions!

Student Loan Debt Consolidation

Students and recent grads who are drowning in debt often call for help with debt consolidation loans. While there are debt consolidation loans for students, they can be difficult to obtain as most recent graduates don’t have a sufficient credit history or a high-paying job. Refinancing is another option, in which case a single loan is paid off with a new loan offered at a lower interest rate and better terms.

There is a lot to consider when it comes to student loan debt consolidation. Learn more about student loan debt consolidation.

Other Debt Consolidation Options

Don’t like the idea of taking on more debt to pay off your current debt? Or have you been denied a debt consolidation loan? Here are four other debt consolidation options:

  • Home Equity Line of Credit (HELOC). These “second mortgages” let you use the equity you have paid into your home to obtain a loan. A HELOC can be a valuable tool, if used correctly.

  • Lines of Credit. Using collateral, you may be able to get a line of credit from your bank and use it as a kind of debt consolidation option
  • Debt Consolidation Program. A program where you work with a non-profit credit counselling agency that negotiates with your creditors to consolidate your unsecured debts into one monthly payment with little or no interest. Learn more on our Debt Consolidation Program page.

Credit Canada Expert Tip:

Debt consolidation loans are in no way related to government debt management programs. Government debt consolidation loans do not exist. Avoid any debt service company claiming or suggesting they offer government-affiliated debt consolidation loans as this is likely a credit repair scam.

Before Making a Decision

Important things to think about when considering debt relief through a debt consolidation loan include your life needs and your financial goals.

Your Life Needs 

You need to be careful when considering a debt consolidation loan for debt relief. The purpose of the loan should be to help you improve your debt problems, not make them worse. That purpose is defeated if, after you get the loan, you go on to accrue more debt.

Before you sign any loan application, carefully review the terms. While the repayment plan may seem appealing because it can free up more monthly cash for you, in the long run, it can end up costing you more than what your former, separate debts did.

Your Financial Goals

Where do you want to be in a year? Three years? It's important to consider how different payment methods (snowball vs avalanche) will impact your time-to-payoff and how much you can save on interest payments.

Remember, a debt consolidation loan is just one option to help you manage your finances and address any debt challenges you might be facing, which are usually moderate in nature. But for those experiencing serious debt problems, a debt consolidation loan may not be the best course of action.

Frequently Asked Questions

What is a debt consolidation loan?

Debt consolidation loans are loans used to pay off debt. When you obtain one, multiple unsecured debts are combined into one single monthly payment on the new loan.

What are the benefits of a debt consolidation loan?

Debt consolidation loans generally offer lower interest rates than those offered on unsecured debts, allowing you to pay off debt faster. They also simplify your life by allowing you to make one monthly payment versus many with multiple due dates

What type of debt can be paid off with a debt consolidation loan?

Debt consolidation loans are used to pay off unsecured debts – “bad debts” which have high interest rates, such as credit card bills and payday loans.

Can I use a debt consolidation loan to pay off secured debts?

Though rare, some lenders will include secured debts, such as a mortgage or auto loan, in a debt consolidation loan. However, secured debts generally have a lower interest rate than the debt consolidation loan itself, so it is not often recommended.

How can I get a debt consolidation loan?

Debt consolidation loans are offered by banks, credit unions, and finance companies. To obtain a debt consolidation loan, you generally need to have good credit and a steady income.

Why was I denied a debt consolidation loan?

The most common reasons why people are denied a debt consolidation loan are bad credit, low or no income, and high debt.

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Are there debt consolidation loans for bad credit?

Reputable lenders want their clients to have good credit; this provides them reassurance that they will get their money back. If you have bad credit and you’re offered a debt loan, it could potentially be a loan scam. Loan scams often advertise “no credit check” or “guaranteed approval.”

Is it a good idea to get a debt consolidation loan?

A debt consolidation loan can help you pay off debt faster if it has a lower interest rate than your individual unsecured debts. However, many lenders often require collateral (such as your home) when offering a loan, and failure to pay the loan could jeopardize your home ownership. You could also find yourself deeper in debt if you continue to use the credit cards you’ve paid off, as you’ll now have the loan and the credit card bills to pay.

How much does a debt consolidation loan cost?

There are generally no fees for obtaining a debt consolidation when you work with a reputable lender.

Do debt consolidation loans hurt your credit?

A loan may initially lower your credit score, but with on-time payments, it will eventually rebound and improve your credit.

Can a debt consolidation loan be used for student loans?

It is difficult to obtain a debt consolidation loan to pay off student loans, and it generally does not make financial sense as the interest rate on the student loan is usually lower than the interest rate on a debt consolidation loan.

In addition, student loans are considered “good debt” (as it is expected that higher education will also earn you a higher income) rather than bad debt (such as credit cards and payday loans) which offer no value.

How can I consolidate my credit card debt without a debt consolidation loan?

Alternatives to debt loans include credit card balance transfers (combining the balances of multiple credit cards onto one card with a lower interest rate), a HELOC (borrowing money against the equity in your home), and a Debt Consolidation Program (working with a non-profit credit counselling agency that negotiates with your creditors on your behalf).

Debt Help is Available with a Debt Consolidation Program

Debt problems that are deeply rooted in poor spending habits or addictive behaviour may need special attention. For income earners, debt problems can be overcome with the help of skilled non-profit credit counselling professionals offering a Debt Consolidation Program.

There are many debt consolidation companies in Canada, but none with the experience and knowledge of Credit Canada. For over 50 years, we’ve been helping Canadians get debt help—and it shows in our Google Reviews, where our average score is 4.9/5! 

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