The Best Debt Consolidation Loans in Ontario for 2024
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If you live in Ontario and are having a hard time balancing multiple high-interest loans or credit card, debt consolidation might be worth a look.
Debt consolidation will help you reduce your monthly loan payments and buy your budget some breathing room. Not only this, but debt consolidation will also help you save some money on interest payments since it can help you tap into a lower interest rate.
Managing your loan payments becomes easier when you replace multiple payments with one affordable payment. This guide will help you explore debt consolidation options in Ontario, explain how it works and what you need to qualify. while answering some of the most commonly asked questions related to the service. Let's get started!
How does debt consolidation work in Ontario?
The basic idea behind debt consolidation loans in each city of Ontario remains the same, be it debt consolidation in Mississauga, Toronto, Ottawa or beyond. You take a low-interest loan to pay off your multiple debts with one payment. To get more information about the process, you can reach out to a service provider or lender of your choice. You’ll find a lot of options for debt consolidation loans in Ontario. Here is what you can do:
- You can consider a balance transfer credit card.
- Or apply for a debt consolidation loan.
- If you don’t qualify for a card or loan, you can try establishing a debt management plan with a credit counselling firm.
Expert advice
In some cases, a consumer proposal or bankruptcy is your only option for escaping debt. They both strongly damage your credit score and history and will have an impact on your ability to borrow for years. Consult with a professional first to understand your options.
Here is an example to help you understand the benefits of debt consolidation:
For example
Let’s consider that you live in Mississauga with your partner and have a balance of $5,000 and $6,000 on your two credit cards, respectively. They both have an interest rate of 20%. If you want to be free of the debt in three years, you’ll need to pay $410 every month, paying $3,701.01 in interest in three years.
But if you take consider debt consolidation at 9% for three years, you’ll instead pay $349.80 monthly. In three years, you’ll pay $1,592.69 in interest, saving $2,108.32. Here’s a representation for your reference:
| Debt | Existing credit cards | Debt Consolidation Loan |
|---|---|---|
| Balance | $11,000.00 | $11,000.00 |
| Interest rate | 20% | 9% |
| Duration | 3 | 3 |
| Monthly payment | $410 | $349.80 |
| Total interest paid | $3,701.01 | $1,592.69 |
| Total balance paid | $14,701.01 | $12,592.69 |
When is debt consolidation a good idea?
Debt consolidation can be a good idea in several cases, especially if you have multiple high-interest-rate loans. Debt consolidation in Ontario can be a good idea for:
- Lowering monthly interest payments
- Combining multiple bills into one
- Gaining time and flexibility to pay off debt over a longer period
- Reducing interest rates
In all such cases, debt consolidation can help you rebalance your spending and better manage your budget. You can pay your debts off. The best part? It will come at a lower interest rate than your usual loans.
Good to know
Wondering a debt consolidation loan is right for you? Our debt consolidation calculator can help you project how much you could save.
What types of debt consolidation are available in Ontario?
There are lot of options in Ontario for debt consolidation. Some lenders might have stricter eligibility criteria than others. For instance, some might ask you for a good credit score and collateral to secure the loan, while some will care less about your credit score, but have less-generous rates. Here are some of the most common types of debt consolidation loans available in Ontario:
- Secured debt consolidation loan: These loans are meant to help borrowers secure a loan with the help of an asset, such as their home or vehicle. Since you use collateral for these loans, they offer a low-interest rate and don’t really rely on your credit score. Keep in mind that the lender can repossess your asset if you default.
- Unsecured debt consolidation loan: An unsecured debt consolidation loan is the best way to get a loan or borrow money from a lender without needing any collateral. All you need is a good credit score. While this loan has its perks, it comes with higher interest rates than secured debt consolidation loans.
- Balance transfer credit card: A balance transfer credit card will allow you to move all your debts onto a balance transfer card that comes with a lower interest rate.
- Debt management program: These programs help you get your budget reviewed by financial experts. The experts will also negotiate with your lender in order to consolidate your unsecured debts through one monthly payment with minimum to no interest. You’ll need to contact credit counsellors or debt management firms for such services.
- Debt settlement: In debt settlement programs, credit counsellors or debt settlement firms negotiate on your behalf with your creditors. You’ll pay your debt in one go by making one large payment that’s lower than what you owe. While it sounds like a win-win case, it can be a risky debt consolidation option since it doesn't guarantee results.
What do you need to qualify for debt consolidation?
In Ontario, almost all lenders will look for a good credit score to ensure that you’re eligible for debt consolidation. Along with a good credit score, here is what you’ll need to qualify for debt consolidation in Ontario:
- A good monthly salary to pay your monthly bills
- Some collateral to secure your loan, such as a house
- A good and long history of employment
- Canadian citizenship or residency
- Ability to cover all of your expenses on your own
Some lenders may consider your credit score, while others will check your income and other things listed above.
What kinds of debt can be consolidated?
With debt consolidation, you can consolidate heavy or high-amount loans. It’s a good idea to consider debt consolidation since it comes at a lower interest rate than normal loans, helping you save more. Here are some kinds of debts you should consolidate:
- Credit card debt
- Student loans
- High-interest personal loans
There are some cases when debt consolidation might not be the best idea. For instance, if you have a small debt load that you can pay off in a short period — six months or a year — from your income. Don’t consider debt consolidation in such cases, even if you save only a small amount since it can lower your credit score. But it all depends on your personal choice and needs. Take it if you want to.
What is the interest rate on debt consolidation in Ontario?
Debt consolidation in Ontario has interest rates starting from 5.4% and going up to 32%. Some lenders have an interest rate as high as 46.96% for those with low credit scores. Maintaining a good credit score will help you access lower-interest debt consolidation in Ontario.
The interest rate for your debt consolidation in Ontario will also depend on a couple of personal factors, such as:
- Your income
- Your debt-to-income ratio
- Your credit score
- Your ability to secure the loan through collateral, such as your vehicle or house
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Tips for getting the best debt consolidation loan in Ontario
With the ever-expanding financial market and new lenders entering the sector, it’s getting quite challenging to find good debt consolidation in Ontario. It becomes even more challenging if you have a poor credit score. Here are some tips and tricks to simplify your hunt for the best debt consolidation in Ontario:
- Compare services offered by different lenders, such as interest rates, loan amounts, fees and terms.
- Check the consolidation process and get familiar with it by visiting your lender’s website.
- Make sure to keep all the necessary information handy for a smooth process.
- Take some time to read customer reviews about the lender’s service before jumping to any conclusion or making a decision.
Where can I get help with debt consolidation in Ontario?
Ontario government has a couple of programs to help people with certain types of debt. For instance, Repayment Assistance Plan (RAP) can help you with these types of loans:
- Canada-Ontario integrated student loans
- Canada student loans issued before August 1, 2000
- Ontario Student loans issued before August 1, 2001
- Part-time Canada student loans
You can also seek help from service providers like the Credit Counselling Society that can help you if you have been declined debt consolidation in Ontario.
How does debt consolidation affect your credit?
Generally, lenders run a hard credit score check before considering you for debt consolidation in Ontario. They will lend you the loan once they check your eligibility for the same. As soon as you get the loan, your credit score may drop, but it’s temporary. Just make full, timely debt repayments and avoid applying for too many credit products at once. Your credit score will bounce back soon.
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