Are your bills piling up? Do you have debts you’re struggling to pay off, and feel like your financial situation will never improve? Do you get anxious when you think about your finances? If money worries are keeping you up at night, things have gone too far—it may be time to do something about your debt once and for all. Here’s how debt consolidation can help.

Understanding debt consolidation

What is debt consolidation?

Debt consolidation involves paying off multiple debts with a single loan from a bank or other financial institution at a lower interest rate than that charged by your creditors. By consolidating some or all of your debts in this way, you’ll have fewer monthly payments to manage.

Debt consolidation has several advantages. Firstly, this single monthly payment can help you manage your day-to-day finances more effectively and prevent oversights and late payments. Secondly, since loans are generally granted over a term of three to five years, chances are you’ll be able to pay off your debts within this timeframe. What’s more, with interest rates ranging from 9% to 15% depending on your credit score, you’ll pay off your loan faster while also saving on interest.

Last but certainly not least, consolidating your debts won’t affect your credit score as long as you make your monthly payments on time.

If you are refused a consolidation loan or if the monthly payments required would be too high, a consumer proposal may be a good alternative.

Who can benefit from debt consolidation?

If managing your debt seems complicated, debt consolidation could be a simple and flexible solution. This is especially true if the interest rate on your current payments is higher than that of a typical consolidation loan. That said, you must meet several eligibility criteria to qualify.

For example, you must be able to prove that you can make your loan payments. This means that banks will be looking for stability in your employment and living situation. They’ll also pay close attention to your credit report to confirm there’s no risk of you missing a payment.

One of the tools lenders use to assess risk level is your debt-to-income ratio, which should not exceed 40% including the consolidation loan. Depending on your credit history, some creditors may accept a ratio of 44%. In addition to your debt load, you’ll also need to prove that your personal expenses leave enough of a margin to meet your commitment—which is why it’s important to take stock of your financial situation to determine whether you fulfill the requirements.

Assessing your personal debt situation

Create your personal balance sheet

This exercise will give you a clearer picture of your financial situation and tell you exactly where you stand. Your balance sheet should list all of your assets, income, debts, and regular monthly expenses. The community organization ACEF offers printable tools (in French) to help you do just that.

Take an inventory of your debts

If you want to consolidate your debts, a debt inventory is indispensable. Making a list of everything you owe will help you understand the extent of your debt. It will also enable you to sort your debts by amount and interest rate to determine which ones to prioritize. For example, mortgage debts are rarely problematic, because they are tied to a property that is likely to increase in value over time. The best debts to consolidate are those with the highest interest rates: credit cards, department store cards, and no-annual-fee cards with rates ranging from 15% to 23%. These borrowing products are the riskiest.

Debt consolidation strategies

Weighing your debt consolidation options

Consolidation loan

A consolidation loan generally comes with an interest rate in the 9% to 15% range and eliminates your consolidated debts in five years or less. It also makes managing your money easier, since you’ll only have one monthly debt payment that doesn’t change from month to month. A consolidation loan can be secured or unsecured. For example, you could secure the loan using equity in your home to unlock a lower interest rate. The advantage of an unsecured loan, however, is that you can get approved more quickly because there is no asset appraisal involved.

Unsecured line of credit

An unsecured line of credit also offers a lower interest rate compared to a credit card. The big difference between a line of credit and a consolidation loan is that you can reuse the available balance on a line of credit as you make your repayments. With its flexible repayment terms, a line of credit may be a good option if you have irregular income, provided you’re able to avoid taking on more debt.

Home equity line of credit

This can be an attractive option if you have at least 35% equity in your home based on its current value. With a home equity line of credit (HELOC), you could potentially borrow up to 65% of your home’s value at an advantageous interest rate compared to other types of loans. Just like an unsecured line of credit, borrowers can access their HELOC balance as it is repaid, which again requires discipline.

Mortgage refinancing

Mortgage refinancing involves renegotiating the terms of your existing mortgage to include your high-interest debts. This option lets you borrow up to 80% of the value of your home—and in some cases, obtain a better interest rate and therefore save on costs each month. Be sure to consider any penalties or fees associated with this option, such as with a mortgage prepayment.

Who can help you consolidate your debts?

Your financial planner is your best ally, since they have an in-depth understanding of your finances. As such, they can recommend the best services and options for your situation, including the solutions available through your bank. You can also talk to an advisor at your financial institution. They will assess your situation and determine whether you qualify for debt consolidation.

Changing your spending habits

Make a budget—and stick to it!

Now that you’ve filled out your personal balance sheet and have a better idea of where things stand, it’s now essential to make a budget that will help you balance your cash flow. If you find yourself in the red at the end of the month, you need to take a good look at your priorities and distinguish between wants and needs. The goal here is to modify your spending habits and eliminate unnecessary expenses.

Budgeting apps like Mint, Fudget, and Spendee can help you track your expenses.

Reduce your expenses

Put away those credit cards

It should come as no surprise that it’s strongly recommended to stop using your high-interest credit cards. Of course, there’s no harm in calling your card issuers and asking for a better rate! And if that doesn’t work, don’t hesitate to shop around. Creditors regularly offer attractive promotional rates. Top tip: Don’t apply for additional credit. Only transfer your current balance, then cancel the original card.

Reduce your energy consumption

Turn off the lights when you leave a room; lower the thermostat by a few degrees; take showers instead of baths and reduce the time you spend in the shower; unplug appliances when not use and opt for energy-efficient models; wash your clothes in cold water and hang them to dry . . . These small steps may seem insignificant, but they can have a huge impact on your energy bill.

Unsubscribe from services and apps you don’t need

Do you subscribe to multiple streaming platforms? Are you paying for an app that you’ve been meaning to cancel? Now’s the time to carefully review your account statements for any automated payments that are putting a strain on your budget.

Ask for help

If you really don’t have a head for numbers, ask an accountant or financial planner for help, or talk to your Multi-Prêts broker. Talking about your challenges is a great first step.


Your lender will take a close look at your credit file to make sure you’ll be able to repay the loan. The better your credit, the better the interest rate you’ll be eligible for. Conversely, if you have a lower credit score, you may have to accept a higher interest rate or provide additional collateral. Fortunately, there are many ways to maintain or rebuild your credit score!
Consolidating your debts won’t affect your credit, as long as you don’t miss any payments.

Key takeaways

  • Debt consolidation can help you manage your money more effectively.
  • Consolidating your debts won’t affect your credit if you make your monthly payments on time.
  • Creating a personal balance sheet can help you determine which debts to focus on first.