You may have heard that debt consolidation can help you get ahead of unpaid debt. But even with this information, you might have questions about how debt consolidation works, and whether it would be right for you. To help answer these questions, we teamed up with our partners at Fairstone, a responsible Canadian lender since 1923. Here are your top 5 questions about debt consolidation, answered.

  • How does debt consolidation work?

With debt consolidation, you take out a new loan equal to the amount of unpaid debt you have, and use the new loan to pay off the debt. Essentially, you’re combining (or “consolidating”) existing debts in this single loan and then can focus on making only one simple monthly payment.

For example, let’s say the total amount of debt you’re carrying is $18,500 – but each bill has its own interest rate, payment amount, payment deadline and time to pay off.

Before a debt consolidation loan:

Credit card 1 Credit card 2 Personal loan Retail store financing
Interest rate 19.99% 19.99% 31.99% 29.99%
Balance $7,500 $5,000 $4,000 $2,000
Initial monthly payment* $225 $150 $174 $60

Total debt


Total monthly payment


Months to pay off


With consolidation, you’ll take out a loan for $18,500, pay off the old debts, and are left with one monthly payment at a set payment amount each month – less to remember, and the old debts are cleared away.

After a debt consolidation loan:

Fairstone debt consolidation loan
Interest rate 19.99%**
Balance $18,5000
Fixed monthly payment $345

Total debt


Total monthly payment


Months to pay off


In the example here, you could save $264 a month and be debt-free in half the time it would take without a consolidation loan.

  • When and why should I consider consolidating debt?

If you have multiple outstanding debts with various payment amounts and rates, are frequently making the minimum payment or only small payments on these debts, and are ready to get out of debt, it’s a time to consider debt consolidation.

Why consolidate? You could:

  • Experience relief from paying off outstanding debt, particularly anything that is past due or already in collections
  • Gain the simplicity of a single payment of a set amount each month
  • Save money on interest in the long-term
  • End up debt-free significantly sooner than you would making minimum payments on a credit card
  • Will I save money with debt consolidation?

It’s likely that you’ll save money with debt consolidation if you’re currently making minimum payments on revolving debts (like a credit card), or if you’ve fallen behind on bills and are faced with fees and increased interest rates. You’ll benefit from reducing accruing interest charges (by clearing away the old debt) and reducing the time it takes to pay off your total debt.

You’ll likely also save money on your monthly payment. Rather than paying multiple different amounts on different dates, a debt consolidation loan will give you a single, reliable payment amount on a set schedule. Since the amount of the loan will be spread out over the loan term (ranging from 6 months-10 years), you’ll have time to spread out and reduce monthly payment amounts.

Tip: to find out how long it will take to pay off your current credit card balance, review the bottom of your credit card statement. You can also calculate how much you’ll pay in accrued interest charges if you make minimum or small payments using the Government of Canada’s credit card calculator.

  • What can I use for debt consolidation?

Most often customers use a loan or line of credit to consolidate debt as they offer:

  • Access to more money (enough to cover all of your debts)
  • Lower rates than all or some of your debts
  • Set loan terms to enable a regular payment schedule

Homeowners can consider using a secured loan or home equity line of credit to pay off debts. Secured personal loans give borrowers access to more money at a lower interest rate than unsecured personal loans.

  • Will debt consolidation help me improve my credit?

Debt consolidation can be the start of a new chapter in your credit history. Your old debts will be paid off, and you can focus on demonstrating positive payment behaviour while paying off your debt consolidation loan. Maintaining your payment schedule, making payments in full and making extra payments when you’re able can all contribute to an improved credit score.

Better credit doesn’t happen overnight, but during the term of your consolidation loan you have a good opportunity to establish new money management routines. During the same period, you’ll want to avoid repeated late or missed payments and unnecessary spending.

What do I do next?

If you’re ready to get rid of debt and end the year on a new financial note, debt consolidation may be the right option for you. Start by, adding up how much money you owe – the balances on any credit cards, unpaid bills, financing programs, etc. (not including your mortgage). Next, request a quote for a consolidation loan so you can determine if consolidation is the right option for your debt situation.

Visit for a loan quote telling you how much money you can borrow and what your payments might be – no obligation, and no impact to your credit score.

*Illustration only. Monthly payments shown are minimum payments. Payments would change over time based on balance and payment history.

**Rate and amount apply to secured personal loans. Rates may vary. Complete a loan application for personalized results.

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