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Debt consolidation involves combining all your debts into one debt. The aim is to make it easier to manage your repayments and reduce the amount of interest you pay.
While a debt consolidation loan is the best-known way to do this, there are several other options available. Keep reading for your guide to debt consolidation in Edmonton and tips on how to choose the right option for your financial situation.
How to consolidate debt in Edmonton
When you have multiple debts, such as credit card debt, a car loan and a student loan, paying them all off at the same time can be difficult. Not only do you have multiple monthly payments to manage, but the interest you have to pay can make it seem like you may never get out of debt.
But that’s where debt consolidation comes in. If you have several debts, consolidating them allows you to combine them into a single monthly payment, simplifying the repayment process. The most common way to do this is to take out a debt consolidation loan or to consider a balance transfer credit card or line of credit.
However, if you need to consolidate debt in Edmonton, there are other options available that don’t involve applying for a new loan. From debt management programs to formal negotiation processes, let’s take a look at the debt consolidation options you have to choose from.
7 types of debt consolidation in Edmonton
| Type of debt consolidation | Involves applying for a new loan? | |
|---|---|---|
| Debt consolidation loan | Yes | Learn more |
| Balance transfer credit card | Yes | Learn more |
| Line of credit | Yes | Learn more |
| Debt management program | No | Learn more |
| Debt settlement | No | Learn more |
| Orderly Payment of Debts | No | Learn more |
| Consumer proposal | No | Learn more |
1. Debt consolidation loan
How it works
This is the first option most people think of when consolidating debt. A debt consolidation loan lets you borrow money to pay off your existing debts. You then have only one loan to repay and that loan should have a lower interest rate than your previous debts. It also offers the convenience of a single fixed monthly payment, hopefully making it easier to manage your repayments and pay off your debt sooner. There are secured loans available, such as home equity loans, while unsecured debt consolidation loans are also available for borrowers with good credit.
How much it costs
The interest rate varies depending on your credit score and income as well as on the amount you borrow and the loan term. Also remember to check for any fees that apply, such as origination, prepayment or late payment fees. Finally, don’t forget to factor in any early repayment fees that may apply to your existing debts.
Eligibility requirements
Debt consolidation loans in Edmonton are offered by banks, credit unions and online lenders. Requirements vary between lenders, but you’ll need to be a Canadian citizen or resident, be the age of majority in your province and meet income and credit score requirements.
Pros
- Simplify your debt payments. A debt consolidation loan makes it much easier to pay off all your existing debts by combining them into one monthly payment.
- Save money. Find a lower interest rate on your loan and you’ll pay less interest to get out of debt.
- Get out of debt faster. If you can secure a lower interest rate, you’ll be able to get your finances back on track sooner.
Cons
- Be wary of fees. Check what fees apply to your debt consolidation loan as well as any prepayment penalties on existing debts to make sure the new loan is worth it.
- You need to be disciplined. Once you have a debt consolidation loan in place, you need to be careful not to fall into the trap of spending more than you should just because you feel that your debt is under control.
Best debt consolidation loans in Canada
2. Balance transfer credit card
How it works
A balance transfer credit card allows you to transfer your existing credit card debt over to a new card with a lower interest rate. It’s also possible to transfer the balances from several credit cards onto one new card. You’ll need to pay a balance transfer fee, but you can then take advantage of an introductory low interest rate period of up to 10 months. Once this period ends, the card reverts to a higher rate.
How much it costs
You’ll need to pay a balance transfer fee that’s typically between 1% and 3% of the balance transfer amount. The promotional interest rate on your new card is usually between 0% and 3.5%, but take note that it typically doesn’t apply to new purchases. Once the introductory period ends, expect a rate anywhere between 8.99% and 19.99% on your total card balance.
Eligibility requirements
In many cases, you may need a credit score of 650 or higher to qualify for a balance transfer credit card in Edmonton. Some providers have minimum balance transfer requirements, which could be anywhere between $100 and $10,000. Maximum balance transfer limits are typically between 70% and 100% of your approved credit limit.
Pros
- Pay off your debt faster. With a low introductory rate, you can pay down the principal balance on your card much quicker.
- No annual fee. Many balance transfer credit cards have no annual fee.
- Extra rewards. You may want to look for a card that offers additional bonuses, such as earning frequent flyer or rewards points.
Cons
- Balance transfer fee. You’ll need to pay a fee of up to 3% of the balance you’re transferring.
High interest rates on new purchases. The low introductory rate only applies to the balance you transfer – you’ll pay a much higher rate on purchases you make with your new card. - Revert rate. Remember that a much higher interest rate will apply to your balance after the introductory period. You’ll need to be able to pay down a good chunk of your balance during the intro period to make it worthwhile.
3. Line of credit
How it works
A line of credit is a type of personal loan that allows you to withdraw money up to a specified limit whenever you need it. It works a lot like a credit card but typically allows you to access a larger amount and a lower interest rate. You only pay interest on the money you withdraw, not the whole balance, and you make monthly repayments to pay off the funds you borrow. Secured and unsecured options are available.
How much it costs
Interest rates vary between lenders and depend on factors such as your credit score, income and whether the loan is secured. Charges such as annual, monthly and establishment fees may also apply.
Eligibility requirements
Lines of credit are available from banks, credit unions and alternative lenders. Requirements vary between lenders. You’ll generally need to have good credit and a steady source of income to show you can afford repayments.
Pros
- You (usually) only pay interest on the money you borrow. This isn’t always the case, so check the fine print.
- Easy access to funds. Many lines of credit come with a linked debit card so you can easily access your money.
- Flexible. You may be able to access an ongoing line of credit that remains open if you keep up with repayments or a loan with a fixed term of between one and five years.
Cons
- Fees. Annual fees, monthly service fees and establishment fees can increase the cost of borrowing.
4. Orderly Payment of Debts
How it works
An Orderly Payment of Debts (OPD) is a debt repayment program that is available in Alberta and selected other provinces. Offered under the federal Bankruptcy & Insolvency Act, it allows you to consolidate unsecured debts into one loan with a single monthly payment for up to five years. This means you still pay off all your debts, but at a lower interest rate. The OPD program is managed exclusively by Money Mentors, a non-profit organization in Alberta.
How much it costs
The annual interest rate on an OPD is fixed at 5%.
Eligibility requirements
The OPD program is available to residents of Alberta. Any unsecured debt is eligible.
Pros
- Fixed interest rate. With a 5% interest rate, you can take advantage of a fixed monthly payment. You also have only one monthly payment you need to make.
- Protects you against legal action and harassment. Taking out an OPD prevents creditors from taking legal action against you and stops credit collectors from harassing you.
- Assistance from credit counsellors. You’ll also receive credit education and guidance from credit counsellors to help you manage your money.
Cons
- Stays on your credit report for two years. If you enter the OPD program, it will stay on your credit report for two years after you finish paying off your debt.
- Can’t apply for credit. You are not allowed to apply for new credit while under an OPD
5. Debt management program
How it works
Debt management programs are available through credit counselling agencies. When you enroll in this type of plan, your debts are consolidated into a single repayment schedule, and the counsellor contacts your creditors to get them to reduce the interest rate on your outstanding debts. You can then pay off your debts over a period of up to five years, with the credit counselling service distributing money to your creditors.
How much it costs
The interest rate that applies will depend on what the credit counselling service can negotiate with your creditors. The counselling service may also charge fees such as set-up and monthly maintenance fees.
Eligibility requirements
You’ll need to have a reliable source of income to qualify for a debt management program in Edmonton. These plans are also designed for debts of $5,000 or less.
Pros
- Lower interest. You can pay reduced interest on the debt you owe, and in some cases, the interest could be eliminated entirely.
- Simplify your payments. Rather than making multiple payments on separate debts, you only need to make one monthly payment.
- Help available. The credit counselling agency can also offer advice and support to help you pay off your debt.
Cons
- Fees apply. Check the fine print to find out whether set-up fees, monthly fees or other charges apply.
- Voluntary agreement. Since a debt management plan is a voluntary agreement, some creditors may refuse to accept its terms and you will have to make separate payment arrangements with them.
- Unsecured debts only. You typically aren’t able to include secured debts in a debt management program.
Check out the table below for a sample of organizations that help with debt management programs.
| Name | How it works | Location in Edmonton |
|---|---|---|
| Debt.ca | The first step is to have your debts and income assessed by a credit counsellor. They will then advise you on whether a debt management program is right for you, and you can enroll by providing the full details (creditor names, account information, balances, etc.) of all your debts. The counsellor will then contact your creditors to negotiate lower interest rates and fees on your behalf. A one-time set-up fee and monthly fees apply. | |
| Credit Counselling Society | A credit counsellor assesses your financial situation to determine if it’s the right option for you. If you decide to enter the program, a counsellor will negotiate with creditors to consolidate your debts into one monthly payment, lowering or eliminating interest in the process. A sliding fee scale applies and is capped at $75 a month. | Online appointments only |
| Money Mentors | Money Mentors offers free credit counselling to help you decide on the best way to get out of debt. If you enter a debt management program, a counsellor can contact your creditors to try to get them to agree to consolidate your debts into a single monthly payment. They also aim to negotiate lower interest rates. A monthly administrative fee applies. | You’ll be matched with a credit counsellor for an online or in-person appointment. |
6. Debt settlement
How it works
Not to be confused with a debt management plan, debt settlement is offered by debt relief companies and some credit counselling agencies. It’s a more serious solution than a management plan and involves the debt relief company negotiating with creditors on your behalf. Rather than paying off the total debt, they negotiate a one-off lump sum you can pay to eliminate your debt.
How much it costs
The exact amount of the lump sum varies depending on your personal circumstances. Keep in mind that the debt settlement company also charges a fee, which is often around 20%.
Eligibility requirements
You’re often limited to unsecured debts only.
Pros
- The lump sum may be lower than your total debt. The one-off lump sum payment you’re required to make may be less than the amount you owe.
- Save on interest. Settling your debts allows you to avoid paying further interest on your debts.
- You don’t have to deal with creditors. Using a debt settlement company means you don’t have to cope with the stress and hassle of negotiating with creditors.
Cons
- You may not have enough funds. If you’re struggling financially, you may not be able to gather the money required to negotiate a settlement.
- Creditors might say no. Creditors don’t have to negotiate with debt settlement companies and may refuse any offers.
- Fees apply. Make sure you know about any fees a debt settlement company charges before signing up.
- Hurts your credit score. Your credit score will take a hit when you enroll in a debt settlement program.
- Watch out for disreputable providers. Research a debt settlement company to make sure it’s legitimate, and be wary of any provider that makes promises which sound too good to be true.
Check out the table below for a sample of organizations that help with debt settlement.
| Name | Overview | Location in Edmonton |
|---|---|---|
| Debt.ca | The first step is to assess your debts and your financial situation to decide whether debt settlement is right for you. Debt.ca will then work with your creditors to negotiate the principal you owe to an amount 20-80% lower. Once you’ve enrolled, you make fixed monthly payments into an account. Once the account has accumulated sufficient funds, Debt.ca pays off your creditors one by one. Fees apply. | |
| Credit Counselling Society | If debt settlement is the right option for you, a counsellor negotiates with creditors on your behalf. However, you’ll need to have a lump sum available now. No fees apply unless Credit Counselling Society is successful in negotiating a settlement. | Online appointments only |
7. Consumer proposal
How it works
A consumer proposal is a legal agreement you enter into with a Licensed Insolvency Trustee. The trustee will help you put together an offer to your creditors to do one of three things:
- Pay your creditors a percentage of what you owe them
- Extend the amount of time you have to pay back the money you owe
- Both of the above
This bankruptcy alternative has a maximum term of five years.
How much it costs
The amount you pay varies depending on the agreement the trustee negotiates with your creditors. Fees of around $1,500 are also paid to the trustee, but this fee is included in your monthly payment rather than charged as a separate fee.
Eligibility requirements
Consumer proposals are designed for people with unsecured debts of less than $250,000. The creditors may also decide to reject your proposal – check out our guide to why consumer proposals are rejected for more details.
Pros
- Simplify your payments. A consumer proposal lets you consolidate debts into one simple payment and also negotiate a longer payment term.
- You may not have to pay back the total debt. The amount you have to pay to your creditors may be less than what you owe.
- Keep your assets. You get to retain assets like your home and car, which you may otherwise lose if you file for bankruptcy.
Cons
- Lower credit score. While it doesn’t have the same impact on your credit score as declaring bankruptcy, a consumer proposal can significantly impact your credit score.
- Stays on your credit report. Your consumer proposal will stay on your credit report for three years after you pay it off.
- Missed payments. Your proposal may be terminated if you miss three months’ worth of payments.
You’ll find a sample of companies that help with consumer proposals in the table below.
| Company | Overview | Location in Edmonton |
|---|---|---|
| MNP Debt | MNP Debt is a Licensed Insolvency Trustee with an office in downtown Edmonton. It offers free confidential consultations to help you explore debt relief solutions and find one that’s right for you. | 10235 101St N.W. Suite 1300 Edmonton, AB, T5J 3G1 |
| Goth & Company Ltd. | Goth & Company Ltd. Licensed Insolvency Trustees serve Edmonton and northern Alberta. Incorporated in 1993, the company has multiple Edmonton offices and specializes in consumer and corporate debt solutions. |
|
How to find the best debt consolidation service for you
The only way to find the best debt consolidation service in Edmonton is to compare a range of options. Keep the following factors in mind when comparing providers:
- Not-for-profit or for-profit. Consider whether you want to use a not-for-profit debt relief service or a company that operates to make a profit. You can typically expect lower fees from not-for-profit providers.
- Check out what services are available. Check what debt relief solutions and management options the provider offers and whether they suit your needs. For example, do they offer suitable loan amounts, competitive rates and flexible debt consolidation options?
- Read up on the company’s history. How long ago was the company established? Does it specialize solely in consumer debt relief or focus on a wider range of services?
- Check the fee schedule. Read the fine print to find out exactly how much the debt consolidation option you choose will cost you.
- Look for educational resources and assistance. Check whether the provider also offers other resources to help you get out of debt now and stay debt-free in the future. These may include free credit counselling, webinars and how-to guides.
- Read customer reviews. Check out what other customers have to say about the provider on independent review sites. Did the service help them get out of debt? Would they recommend it to other consumers?
- Watch for red flags. Finally, don’t forget to keep an eye out for red flags that may indicate a provider is not legitimate. These include asking for fee payment upfront, a hard-to-reach or unresponsive customer service team and high-pressure sales tactics.
Edmonton personal finances at a glance
Debt is a big issue for people right around the country. According to Equifax Canada’s Market Pulse consumer credit trends and insights report, which was released in September 2022, the average Canadian has $21,128 of non-mortgage debt.
Debt in Edmonton
According to Equifax data, the average Edmonton resident has $23,554 of non-mortgage debt. This is the third-highest average among Canada’s major cities, just behind Calgary ($23,660) but well below the level of Fort McMurray ($36,970).
Income in Edmonton
In 2022, the median income of Edmontonians aged 15 and over was $45,800. That’s a little higher the province-wide median for Alberta, which was $45,200.
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