Remember those carefree, stress-free, debt-free days? Maybe they were a long time ago, or perhaps you’ve just recently found yourself in over your head. Either way, you’re not alone.
Today, many Canadians are living above their means, and it’s reflected in our household debt-to-income ratio, which is up nearly 25 percent from just one decade ago. Those who’ve found themselves in a financial freefall can come from any economic or educational background—they may have suffered a personal tragedy, a professional setback, or perhaps they just didn’t understand the nuances of credit cards. Either way, once you’re in debt, the recovery can take years; not to mention hundreds (if not thousands) of dollars in interest.
But fear not! Reclaiming that feeling of freedom is possible through debt consolidation.
Canada’s “borrowing binge” is taking its toll, causing both mental and physical anguish. In fact, recent studies have linked debt-related stress to depression, anxiety, high blood pressure, and even stroke.
So, if you’ve found yourself staring at a stack of bills with tears in your eyes and your head in your hands wondering, “How did I get into this mess?”...
“In fact, recent studies have linked debt-related stress to depression, anxiety, high blood pressure, even stroke.”
Or if you keep your phone on vibrate to drown out the constant ringing from debt collectors…
Or if your financial woes are causing you sleepless nights and disagreements with your spouse or partner…
Then debt consolidation is not just a good option—it’s a great option!
So what exactly is debt consolidation? Simply put, it’s the process of combining two or more debts into one monthly payment.
Sound complicated? Not when you’ve got a dedicated credit counsellor on your side! While navigating through debt on your own can be confusing, your counsellor acts as your compass, guiding you every step of the way. They’ll take care of the details, rounding up all your unsecured debt and negotiating with creditors for you, so you can enjoy:
One monthly automatic payment via telephone banking, debit card, or money order, with full tracking. You send your payment to the credit counselling agency and they distribute it for you to your creditors.
A more affordable monthly payment. Many people have their debt paid off within 24 to 48 months.
Reduced interest on debt. This can add up to hundreds or thousands of dollars over time. Most creditors, glad to simply be getting repaid, will even agree to a zero percent interest rate.
A set completion date. No more feelings of hopelessness, or wondering if you’ll ever have your debt paid off. The plan you and your counsellor agree on always has an end-game!
Along with the aforementioned benefits listed above, debt consolidation puts you in direct contact with a certified credit counsellor, who will be your go-to for anything that has to do with your debt throughout the entire debt consolidation process. Collection calls? They'll handle them. No budget? They got you. Once you decide to consolidate your debt, your debt is in their ball court, so you'll only have to deal with your counsellor, and they will guide you until you are 100% debt-free.
Your counsellor will also help you build the financial future you want by teaching you how to:
Track your spending. Ever find yourself a week away from payday and wondering where all your money went? By keeping track of what you have coming in versus what you have going out, you’ll be able to easily see where you’re dropping the most coin—and where you can cut back.
Build a monthly budget that works for you. A budget isn't meant to limit your spending; it funds your future. Better money management will help you grow your savings and build an emergency fund so that you’re less likely to reach for credit cards down the road.
Set financial goals. Where do you want to be in 5 years, besides out of debt? How about 15 years? Whether you want to be settled in a new home, helping your child through school, or looking forward to retirement, your counsellor can help set realistic goals and how to achieve them, be it through investing or picking up a side hustle and joining Canada’s new gig economy!
While some people might think of bankruptcy as a “tabula rasa” or a blank slate, it's a common misconception. Bankruptcy can’t wipe away your woes, and acts more like a stubborn ghost that haunts you in a number of different ways:
It kills your credit and makes it extremely difficult to rebuild
It takes your non-exempt assets, including RRSP contributions, HST cheques, and tax refunds
It seizes any equity you may have in your home; if you don’t have a home, obtaining a mortgage in the future will be next to impossible
Additional payments may be required based on your income
Administrative fees will be assessed
You must perform court-ordered duties, such as report your income, taxes, and attend mandatory counselling
Bankruptcy can seriously limit your financial future, and hurt you in the short-term, too. It should only be considered as an absolute last resort when all other options have been explored.
What's the Difference Between a Debt Consolidation PROGRAM and a Debt Consolidation LOAN?
Consolidation options causing confusion? That’s because too often some of the terms are used interchangeably. Let’s be clear: There are debt consolidation programs and debt consolidation loans, and they are not the same whatsoever.
Debt Consolidation Program
A Debt Consolidation Program, as previously described, is an “arrangement” where your credit counsellor will work with your creditors to help you pay off your debt over time. Your debts are combined and your interest is reduced (or eliminated entirely) to help make managing your debt and paying it off not just easier and faster, but in many cases, even possible. With a Debt Consolidation Program, you eliminate debt without an additional loan.
"With a Debt Consolidation Program, you eliminate debt without an additional loan."
Debt Consolidation Loan
A debt consolidation loan, on the other hand, does involve taking out another loan to pay off your debts, generally through a bank, credit union, or finance company. So rather than paying numerous loans of varying sizes and at various interest rates to any number of creditors, you pay off one large loan through one lending institution at a single interest rate.
But there's a catch: To obtain this loan, your credit rating and score must be in good standing. That means you should be up to date on all your minimum payments and they should generally be made on time. But most people who seek a debt consolidation loan have reached a point where they've fallen behind and started getting collection calls, which is why so many people are rejected (while also taking another hard hit to their credit). And if they are approved, interest rates can be higher than the original rates on each individual debt—possibly over 30 percent—which ultimately does more damage than good.
There’s another rub on the loan option: Many people needing debt consolidation also need better money management techniques. By taking out a loan to pay off other creditors, you still have continued access to the original accounts, now with zero balances. Sadly, many people wind up accruing more debt by continuing to use these accounts in addition to the new loan, thus defeating the purpose of consolidation and digging themselves even deeper into debt.
A Final Word of Caution: Beware of Debt Settlement Opportunities
You know the saying, if it sounds too good to be true, it probably is. Despite offers that sound legitimate, these companies have been the focus of consumer alerts from the Financial Consumer Agency of Canada and often claim to be part of a government program, when in fact no such program or government debt consolidation loan exists. Between upfront fees, high-pressure sales tactics, complicated contracts, and false claims, debt settlement companies should be approached with an extreme level of caution and skepticism.
These debts are considered unsecured because they are not tied to an asset that can be seized if payments aren’t made. Creditors can blow up your phone, ruin your credit score mojo, and possibly garnish wages if they were to take you to court and win, but their powers generally stop there.
On the other hand, mortgages or home loans, auto loans, and the like are considered secured debt, meaning there is a specific piece of property that can be collected if you fail to pay your lender.
So while a Debt Consolidation Program will not include secured debts, it does make unsecured debts much more manageable (unsecured debts almost always have a much higher interest rate too) thus improving your ability to continue paying your secured debts in a timely manner.
How Do I Choose the Right Debt Consolidation Agency?
Unfortunately, crooked companies or unscrupulous people looking to exploit those in need are all-too-common these days. Sometimes, people can be so desperate for debt relief help that they’ll jump at the first opportunity that comes their way. That’s why it’s so critical that you do your own research before choosing the right agency to consolidate your debt. Here are 5 surefire ways to ensure your DCP is friend, not foe.
1. Ask about their fees.
Reputable debt and credit counselling agencies don’t come with a hefty price tag—that would kind of defeat the purpose, no? All counselling should be free, and if you do decide to enter a Debt Consolidation Program you’ll likely pay just a small initial set-up fee. (Anything more than $50 should raise eyebrows.)
After that, a minimal management fee will be deducted from your monthly payment to cover processing costs and account management. This shouldn't be more than 10 percent.
2. Make sure they are a non-profit organization (NPO) or registered charity.
One easy way to ensure you’re not getting involved with a questionable agency or an outright scam is to check the agency’s non-profit status—an NPO agency doesn’t stand to benefit by taking advantage of you; they aren’t trying to make money from you, so they simply have your best interests at heart.
Want to go a step further? Check to see if the NPO is also a registered charity, and don’t just take their word for it. You can confirm their status with the Government of Canada’s charity search tool. It’s updated daily, and lets you know whether they’re registered, revoked, annulled, penalized, or suspended. One more thing to keep in mind: A true NPO will not be a lending agency, and therefore not offer you a debt consolidation loan because loans typically generate a profit for the lender, so it wouldn't make sense. Plus, a loan wouldn't be in your best interest anyway—you’re looking to consolidate debts, not acquire new debt.
3. Check to see if they have any accreditations.
Agencies holding accreditation from respected organizations must meet or exceed financial counselling industry standards, and counsellors must go through rigorous training. Two prominent organizations offering accreditation include:
Credit Counselling Canada (CCC)
Association for Financial Counselling & Planning Education (AFCPE)
4. Check their online reviews.
While the Better Business Bureau rates organizations based on complaints from the public, transparency (honesty about business practices), government licensing, advertising policies (again, are they honest?), and more, Google Reviews can quickly give you a real sense of what it's like to be one of their clients. Of course, you can't believe everything you read but if there are an overwhelming number of online complaints regarding the agency, your best bet is to run.
5. Look for consumer accolades or publication features
Sometimes, we just want to hear from our peers. Accolades like the Consumer Choice Award are awarded based on a strictly vetted selection process that includes nominations from consumers just like you. Also check if reputable publications feature the company as a legitimate source of information. This demonstrates a high level of trust as well!
Let’s face it, if you’re looking into a Debt Consolidation Program, chances are your credit has already taken more hits than Rocky Balboa. But like Rocky, you can come out a winner. How? Why, with a Debt Consolidation Program (DCP) of course!
A DCP, when followed and completed successfully, will actually improve your credit in the long-run by properly addressing your debt. Plus, once you're completely debt-free your counsellor will put you on the fast track to rebuilding your credit.
Some of the blows delivered to your credit report are likely due to the following 3 factors. Here they are—and here’s how a DCP can help.
Many individuals seeking debt relief have accounts in collections or accounts with missed or late payments. With a DCP, you only have to make one payment per month to pay all your creditors, making it easier to manage and less likely to be missed.
This is your available credit versus the credit you’ve used. To maintain a good score, this figure should be at or below 30 percent; however, most people in debt-distress are already over, at, or near their limits. Luckily for you, once you're on a DCP you stop using credit (temporarily), so you automatically stop causing more damage.
Remember that credit card offer you signed up for at Walmart or at a department store? Yea, that counted as a hit on your credit. Now multiply that by the number of times in total you’ve attempted to secure more credit, despite already having high credit utilization. Unfortunately, this is a trap many people fall into, which causes their score to fall too. But once you’ve entered into DCP, you’ve made a decision to reduce your debt, so you won't be applying for additional credit until you are debt-free, which means no more hits to your credit.
The short answer is yes, and for some people that’s even scarier than the debt itself. But the truth is most people entering a DCP don’t have any available credit to use anyway. While creditors who accept the terms of the DCP will automatically close your account, you get the empowering pleasure of taking a pair of scissors to those skinny pieces of plastic that have caused so much grief and sleepless nights.
“Going without credit isn't permanent, unless you choose to make it that way.”
Now, like most people accustomed to credit, carrying cash or cheques is like going back to the Stone Age. But there are credit card loopholes, such as your debit card, as well as prepaid and secured credit cards. These cards are loaded with your own money, and you can use them just like a credit card; however, the main difference being that when it’s out of money it’s essentially out of order. It won’t work again until you put money on it, so there’s no longer any danger of dipping back into debt or incurring overdraft or late fees.
If giving up your credit cards still scares you, remember: Going without credit isn't permanent, unless you choose to make it that way. Once you’ve successfully completed the Program, your credit will begin to improve and you’ll be armed with better money management skills. And should you choose to use credit cards again, you can do so with confidence. Just be sure to remember to play your cards right!
After completing a Debt Consolidation Program, most people feel an overwhelming sense of relief and accomplishment. We hear it all the time! Clients say their newfound financial freedom has them thinking in the long-term, whether it’s finally owning a home, travelling someplace exotic, or putting money towards their children’s education. They also find themselves enjoying life more (rather than arguing with their partner), resting easier, and even breathing easier too! But don’t just take our word for it. Listen to what Bernice, Niki, Elaine, and Vito have to say about their debt consolidation experience.
“Remember, maintaining a healthy financial outlook still takes a bit of work.”
Remember, maintaining a healthy financial outlook still takes a bit of work. Think about it; when you’re dieting and finally reach your goal weight, do you immediately go back to your old eating habits and start inhaling poutine and pizza? Probably not. Plus, you've likely built up new and improved eating habits. The same goes for completing a Debt Consolidation Program. Not only will you walk away debt-free, but you would have also developed valuable money management skills and techniques that you can apply directly to your life to help you move forward.
The proof is in the pudding. Seeing is believing. Less talk, more show. Whatever saying you prefer, we get it—you want to know exactly how much you could be saving and how fast you can be debt-free. Well, we’re here to help!
Just answer a couple of quick questions about your credit situation (you may need your credit card statements on-hand) and our Debt Calculator will give your results instantly.