How to Consolidate Debt in Canada

Consolidating debt in Canada is similar to doing it in the United States or elsewhere, although Canadians have some resources to turn to that are unique to Canada. Utilizing a consumer credit counseling organization is a popular way to help organize and repay your debt, but certain steps should be followed to find an organization that is trustworthy.

Things You'll Need

• Copies of recent tax returns and pay stubs

Instructions

1. Repaying your debt is about preparation and full disclosure. Pull your credit reports from the three major credit reporting agencies--Experian, Transunion and Equifax--to confirm what financial responsibilities you have. All three credit reporting agencies are available in Canada. You can obtain these credit reports for a small fee. Or, if you apply for credit, you're eligible to get a free copy of your report. This also ensures that you're made aware of all your credit accounts, paid or open.

2. Go online and visit Consolidated Credit Counseling Services of Canada (find a link in the References section below). This is a non-profit debt management agency and a registered charity, as opposed to a commercial debt management company that may charge fees or benefit in some other way from your debt repayment.

3. Set up a phone or personal appointment with the debt agency. Whether you go with Consolidated Credit Counseling or with some other service, you will need to bring your income records, such as recent tax returns and pay stubs, and debt listings, either from statements or from your credit report. A debt counselor will attempt to create a consolidated repayment plan, which essentially puts most or all of your debts together into one package to be serviced by a single monthly payment. If all goes well, the single payment will be one that you can afford.

4. Wait for the debt consolidation agency to submit a proposal for repayment to your creditors. The agency will make offers to each creditor. If the creditors accept these payment offers, then you'll benefit from paying a lower interest rate and possibly a lower payment in the long run. The agency will provide you a schedule of due dates and a statement. This statement will include your debts and relative balances. You'll send your payments directly to the consolidation agency, who then allocates payments to your creditors. Make timely payments--if you regularly miss payments, you may be removed from the program.

5. If you are credit-worthy and debt consolidation programs aren't for you, consider asking a lending agency for a consolidation loan. As with debt manager programs, get prepared by researching your credit reports and understand the scope of your financial responsibilities. Be ready to prove your income capacity as it's a key component of the loan process.

6. Shop around for good interest rates. Many Canadian banks and lending institutions can be found through online listings, such as http://www.bankingcanada.net/, or in the phone book. Compare rates and payment terms before applying. Your loan could vary from paying weekly, bi-weekly or monthly. Loan rates may be variable or fixed over the time of the loan. Some banks offer an opportunity to skip the equivalent of a payment once per year.

7. Apply for your consolidation loan. Once approved, you'll use the new loan to pay off your old credit card balances and other debts, consolidating them into one loan with one payment. If possible, pay a little extra every month to pay your debt off at a quicker rate.

Tips & Warnings

• When researching a debt consolidation company or organization, check with the Better Business Bureau to ensure there are no complains against the company. Regarding a non-profit debt agency, ask to see if the organization is also a registered charity.

• Avoid companies that say that can improve your credit score. There aren't quick fixes with improving credit. Making regular monthly payments and consolidating debt are two factors that help to improve your credit situation over time.

References

• Consolidated Credit Counseling Services of Canada
• Advice on Debt Counseling in Canada
• RBC Royal Bank

Resources

• Where to find credit reports in Canada
• Canada's Office of Consumer Affairs