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Debt Consolidation

Debt consolidation in Canada – how it works and why you may need it

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Debt consolidation in Canada – how it works and why you may need it

There’s no sugar-coating – the journey to financial freedom is tough. The good thing is, there are effective ways to get out of debt fast. If one of your current goals is to be debt-free, debt consolidation is worth considering. Keep in mind that the only way to keep your finances in order is to learn how to save money and make smarter financial decisions. With that said, we’ll share some more information on debt consolidation to help you decide if this is for you.

What is debt consolidation?

Put simply, debt consolidation in Canada involves bringing together small loans, bills or money you owe from different sources into a single, new loan and then make one monthly payment. Since you are consolidating different types of debts together into a combined loan, the term debt consolidation is used. Remember, each loan has its own repayment terms and interest rates so, in reality, you cannot combine them. What happens is that you take a new loan to clear all the smaller loans you had and then start paying the new loan only.

Who issues a debt consolidation loan?

Debt consolidation is offered by banks, credit unions and other financial companies that deal with credit. When you apply for the debt consolidation loan and your application is approved, the company will deposit the cash to your account and it’s your responsibility to clear the debt or they pay out the debts on your behalf.

What are the benefits of debt consolidation loan?

There are many reasons to consolidate different debts into one payment.

  • Simplifies the repayment process: You never have to keep track of multiple debts, there’s only one payment you need to make each month.
  • Saves money: Sometimes you end up paying lower interest rates especially if you had high interest credit card debt.
  • Can make life manageable: If you get a debt consolidation loan with a lower interest and amortization period then you can repay the loan in smaller monthly payments.
  • Can get out of debt faster: With a lower interest rate, it means most of the monthly payment you make will be going towards repaying the principal hence you’ll be able to clear the debt faster.

How do they determine interest rates on debt consolidation loans?

There are two main factors that determine how much interest you’re likely to pay for debt consolidation:

  • Your credit score: Banks and finance companies consider borrowers with a low credit score as more unlikely to repay debt as agreed in the agreement. Therefore, if your credit score is not good enough, lenders are not confident in your ability to repay the new loan as agreed. You are considered a higher risk borrower and hence they will offer you a much higher interest rate.
  • Collateral: Other finance companies will offer you a debt consolidation loan with lower interest if you provide good security. There are only specific things that the bank can accept as security, mostly stuff that they can easily convert into cash such as real estate or a new vehicle.

Is a debt consolidation loan for you?

There are certainly downsides to debt consolidation. One thing that most people do not understand is that you have to deal with poor financial habits before consolidating debt. Most people take debt consolidation loans with a lower monthly payment compared to their previous payments. This means that they now have something extra to spend every month. They then continue to spend more money than what they earn instead of creating a plan to stop overspending and get their finances back on track. This makes their financial situation worse and in the long run, their credit score becomes worse and qualifying for a new loan is almost impossible.

Therefore, the important thing to do when you take steps to get out of debt faster is to create a budget and follow it making sure you work with how much you spend versus what you earn.

What are your options for debt consolidation?

There are different ways to go about consolidating debt:

  • Home equity loan: This is often considered a second mortgage which you can qualify for if you have acquired equity in your home.
  • Line of credit: There are unsecured and secured lines of credit offered by banks for borrowers with a good credit score and a good income.

Don’t be fooled!

Debt consolidation should help you to get out of debt, not put you in further debt. Therefore, be keen on people who try to sell you a debt consolidation loan that has hefty up-front fees.


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Reno Expert: Don't Move, Improve

Reno Expert: Don’t Move, Improve

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Reno Expert: Don’t Move, Improve

by Jim Caruk

If the real estate market has you feeling jittery about moving, why not focus your attention on the home you already own

After more than a decade of almost non-stop rising home prices in Toronto and the surrounding suburbs, things seem to have finally started to taper off. Still, with the average home price in Toronto peaking somewhere north of $1-million, with realtor fees, land transfer taxes (provincial and municipal if you buy within the city limits), lawyers’ fees, and the various other closing costs, you could quite easily spend $100,000 or more just to swap your old house for a new one, without doing any renovations. Why not put that money into your current house and create the home you’ve always dreamed of?


Kitchens and bathrooms are two of the most popular rooms people focus on when upgrading their homes. Whether it’s a fully functional chef’s kitchen with high-end appliances and plenty of countertop workspace, or a spa-like master bathroom complete with soaker tub and a bevy of spray jets in the shower, these projects can convert an ordinary home into the extraordinary.



You can’t go wrong building a communal living room around a fireplace.

Why not buy one that’s made in Canada by Napoleon?


CAPTION: Photography courtesy of Napoleon


I wouldn’t be doing my duty to all the men out there if I didn’t mention the coveted “man cave.” Whether the focus is on a bar, a pool table, or a big-screen TV on which to watch the game, many a man has appeased his mid-life crisis by ordering up a place of his own where he can hang with his buddies. But if such an upgrade seems to be a tad lopsided, another more inclusive option is to create or remodel the family room into a home entertainment hub.


Some people would rather focus on the great outdoors. Obviously, now isn’t a good time to start building a new deck or installing a pool, but it is a great time to line up a contractor and make some decisions on design and materials so work can get started as soon as the snow is gone.


Of course, these luxury upgrades come at a cost. But even with home prices on a bit of a slide right now, if you’ve been in your house for more than a couple years, it’s almost certainly increased in value. You can access that “virtual” cash by taking out a home equity line of credit.


So save yourself the stress and cost of looking elsewhere for a dream home. That perfect space is possible right where you currently reside, with the added bonus of not purging your possessions and packing your life up into boxes.

Jim Caruk, Renovation Editor

We look forward to hearing from you and welcome your feedback. Do you have a reno or decor question for our team of experts?

Email editorial@renoanddecor.com


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