Debt Consolidation: FAQ

Discover the answers to your top debt consolidation questions.

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General faq

What is debt consolidation, and how does it work?

Debt consolidation combines multiple unsecured debts — like credit cards or payday loans — into a single, more manageable monthly payment. This can simplify your finances and may lower your interest rate.

Is debt consolidation the same as a consumer proposal?

No — a debt consolidation loan is a new loan used to pay off existing debts, while a consumer proposal is a legal agreement with your creditors that can reduce your total debt by up to 80%.

Will consolidating my debt reduce the total amount I owe?

Not usually. Debt consolidation often lowers interest and simplifies payments, but it doesn’t reduce the principal you owe — unless it’s part of a settlement or consumer proposal.

Can I consolidate CRA tax debt or government loans?

Most traditional consolidation loans don’t include CRA tax debt or government student loans. However, these debts can be included in a consumer proposal filed with a Licensed Insolvency Trustee.

What types of debts can I consolidate?

Typically, unsecured debts like credit cards, lines of credit, payday loans, and personal loans can be consolidated. Mortgages or car loans are usually not included.

Will a debt consolidation loan hurt my credit score?

There may be a small impact when you first apply. Over time, however, making regular payments on your consolidated loan can help rebuild your credit.

Can I still use my credit cards after consolidation?

If you’ve used a loan to pay off your cards, keeping them open could tempt you to accumulate new debt. Many lenders recommend closing or limiting usage of old accounts.

Do I need good credit to qualify for debt consolidation?

Yes — most debt consolidation loans require a decent credit score. If your credit has already suffered, you may want to explore a consumer proposal instead.

Challenges

What if I can’t qualify for a debt consolidation loan?

If your credit score or income makes qualifying difficult, you still have options. A consumer proposal does not require a credit check and offers legal protection from creditors.

What happens if I miss payments on a consolidated loan?

Missed payments can hurt your credit and may lead to collection activity. If your payments are becoming unmanageable, speak to a Licensed Insolvency Trustee.

Is debt consolidation right for people with payday loans?

It depends. Payday loans often carry very high interest and may not be eligible for a standard loan. In those cases, debt settlement or a consumer proposal might be better.

Can I consolidate debt if I’m unemployed?

It’s unlikely you’ll qualify for a traditional consolidation loan without steady income. However, if you’re struggling, speak with a trustee — there are options even during job loss.

Does debt consolidation affect my taxes?

No, a debt consolidation loan doesn’t affect your taxes. However, tax debt itself may not be included unless you pursue a legal debt relief option.

Are there fees involved with debt consolidation?

There may be loan origination fees, interest charges, or service fees depending on the lender. Be sure to review all terms before signing.

What happens if I take out a consolidation loan and still struggle?

If a consolidation loan isn’t working, it’s okay to seek help. Licensed Insolvency Trustees can walk you through other relief options, including consumer proposals or bankruptcy.

Understanding Your Debt Relief Options

How do I know if debt consolidation is right for me?

If you have stable income, decent credit, and want to simplify your monthly bills, it might be a good fit. If your debt feels overwhelming or creditors are calling, other solutions may be better.

What’s the difference between debt consolidation and debt settlement?

Debt consolidation is a form of borrowing to pay off your debts in full, while debt settlement involves negotiating with creditors to pay less than what you owe.

Can I switch from debt consolidation to a consumer proposal?

Yes — if your loan becomes unaffordable or you need stronger legal protection, a Licensed Insolvency Trustee can help you file a consumer proposal instead.

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Real Canadians. Real Success — Like Chelsey

“I am immensely grateful to the Spergel team for guiding me through a challenging financial crisis with empathy and expertise. From negotiating with my creditors to providing emotional support and financial education, Spergel transformed my situation from imminent bankruptcy to renewed stability. Spergel is not just a service; they are partners committed to empowering individuals through complex financial journeys, and boy, was mine complex.”

– Chelsey B., British Columbia

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