Debt Consolidation

If you’re trying to manage bills that are piling up, you may have come across the idea of consolidating them. Consolidating your debts can be convenient, allowing you to make one monthly payment. It can also allow you to swap high-interest debt for low-interest debt. However, it has drawbacks and is not right for everyone. Here are some debt consolidation strategies to keep in mind as you plan for paying off your debt:

Balance Transfer
A balance transfer involves opening a new credit card with a low interest rate (for a promotional period). You then move your previous debt(s) to this new credit card. In effect, you will have reduced your interest rate from a high rate on the old debt to a lower rate on the new card.

You will typically pay a fee for the amount you transfer (although some cards waive the fee for applicants with excellent credit), and there will be a limit to how much you can transfer (meaning you may not be able to transfer all of your existing debt).

This is a smart strategy IF:

• You have good enough credit to receive a low percent promotional rate. Note: it is an even better strategy if you have excellent credit and can avoid a transfer fee.
• You will pay off all the debt transferred before the promotional interest rate expires.

A Debt Consolidation Loan
A consolidation loan works much like a balance transfer, but you would be receiving a loan rather than a line of credit. The process would involve opening the loan, using funds from the loan to pay off the previous debt(s), and then repaying the loan. Like with balance transfers, better terms will be reserved for borrowers with good to excellent credit.

To make this strategy worth it, a borrower should only accept a loan with an interest rate significantly lower than the rate on the existing debt(s). Some lenders may charge origination fees, but borrowers should shop around and try to avoid such fees.

This is a smart strategy IF:

• The loan provides better terms than any balance transfer available to the applicant OR the applicant is concerned about being able to pay a balance transfer debt during the promotional interest period.
• The interest rate on the loan is significantly lower than on the previous debt(s), meaning the borrower has good to excellent credit.
• The borrower can avoid origination fees.

Debt Management Program (DMP)

What is a Debt Management Plan?

A Debt Management Plan (DMP) is a structured repayment arrangement designed to help individuals regain control over their finances without resorting to bankruptcy. It consolidates multiple unsecured debts — such as credit cards, payday loans, and lines of credit — into one affordable monthly payment.

The plan is usually set up through a credit counselling agency or debt management professional or debt repayment agency, who works with your creditors to reduce or eliminate interest charges, extend repayment terms, and make your debt more manageable.

How Does a DMP Work?

1. Assessment of Finances – A professional reviews your income, expenses, and total debt.
2. Negotiation with Creditors – They contact your creditors to seek reduced interest rates, waived penalties, and simplified payments.
3. Single Monthly Payment – Instead of juggling multiple payments, you make one fixed payment that is distributed to creditors.
4. Debt-Free Goal – Most DMPs are designed to eliminate unsecured debts in 3–5 years, depending on your budget.

Benefits of a Debt Management Plan

✔ Lower Interest Rates – Creditors may agree to reduce or even eliminate interest.
✔ One Affordable Payment – Simplifies budgeting and reduces stress.
✔ Avoids Bankruptcy – Helps preserve your credit history compared to insolvency options.
✔ Creditor Support – Collection calls and late fees may stop once the plan is in place.
✔ Structured Path to Freedom – Provides a clear timeline to becoming debt-free.

Who Can Benefit From a DMP?

A DMP may be the right solution if:

• You are struggling with unsecured debts (credit cards, payday loans, overdrafts).
• Your income can support regular payments but you’re overwhelmed by interest charges.
• You want to avoid bankruptcy and keep your financial reputation intact.
• You prefer a voluntary, non-legal option compared to a consumer proposal or bankruptcy.

Things to Keep in Mind

• Secured debts (mortgages, car loans) are not included in a DMP.
• Creditors are not legally obligated to accept the plan, though many do.
• Your credit rating may be affected temporarily while on a DMP.
• Unlike a consumer proposal (which is legally binding under the Bankruptcy and Insolvency Act), a DMP is a voluntary arrangement.