Last updated: October 2026
Juggling several card payments, a line of credit and maybe a personal loan is exhausting, and a single monthly payment sounds like relief. A debt consolidation loan can deliver that, but only if the new loan costs less than the debts it replaces.
Canadian Debt Relief is an independent Canadian guide to debt relief options — consumer proposals, debt management plans, debt consolidation and bankruptcy — for people who want to understand their choices before they talk to anyone. This guide covers the types of consolidation loans available in Canada, what they cost, and how to choose one without making your situation worse.
What Is a Debt Consolidation Loan in Canada?
A debt consolidation loan is a new loan used to pay off several existing debts, leaving you with one payment, one rate and one end date. According to the Financial Consumer Agency of Canada (FCAC), consolidating high-interest debts into a lower-interest product may save you money, but it may also extend your repayment period and cost more in interest over time.
For a deeper definition, see our guide on what a debt consolidation loan is.
What Types of Debt Consolidation Loans Are Available?
Rather than ranking lenders, whose rates change constantly, it is more useful to compare the products the FCAC lists:
- Unsecured personal loan: A fixed rate, fixed payment and set term, usually two to seven years, with no collateral. Banks, credit unions and online lenders all offer them, and your credit score drives the rate.
- Secured loan: Backed by an asset such as a vehicle. Rates are often lower, but you can lose the asset if you default. Our guide to secured vs unsecured loans explains the trade-off.
- Home equity loan or line of credit (HELOC): Borrows against your home’s equity, usually at the lowest rates, but your home is the security, and a HELOC normally has a variable rate.
- Unsecured line of credit: Flexible, but usually variable-rate with interest-only minimums, so balances can linger.
- Balance transfer credit card: A promotional low rate for a limited time, usually with a transfer fee. It works only if you can clear the balance before the promotion ends.
What Are the Benefits of a Consolidation Loan?
One predictable payment
A fixed-rate loan replaces several due dates with a single payment and a clear payoff date.
Potentially lower interest
Moving balances from cards charging near 20% into a loan at a lower rate can cut the total interest you pay.
A chance to rebuild your score
The FCAC notes that consolidating can help your credit score if you make payments on time and reduce the number of high-balance accounts.
What Are the Risks and Downsides?
A higher rate is possible
The FCAC warns that with poor credit you may only qualify for a rate higher than your current products, which would increase your debt.
Longer terms cost more
A lower payment spread over more years often means more total interest, even at a lower rate.
Fees and new debt
Origination fees and prepayment penalties add up. Our guide to hidden fees in consolidation loans lists what to look for. Running the cards back up leaves you with the loan and the new balances.
Who Is a Good Fit for a Consolidation Loan?
- You can qualify for a rate meaningfully lower than your current debts.
- Your monthly budget can comfortably handle the new payment, including a cushion for surprises.
- Your debts are mostly unsecured, such as credit cards and lines of credit, and could be repaid within about five years.
- Your credit is fair to good, which is what unlocks the lower rates.
Who Should Look at Other Options?
- The only loans you are offered charge rates close to or above what your cards charge.
- You are already missing payments or relying on one card to pay another.
- Your total unsecured debt is larger than you could repay in roughly five years.
- You would have to put your home on the line for debts that could be handled another way. Compare debt relief and bankruptcy first.
How Much Does a Consolidation Loan Cost on $20,000?
On $20,000 of debt, a consolidation loan at 11% over 60 months costs about $6,090 in interest, compared with about $11,790 for the same debt at 19.99%. The rate and the term together decide the real cost, so here are four scenarios, with no new borrowing:
Stretching the term lowers the payment, but each extra year adds interest. At 29%, the same $20,000 over 60 months would cost about $18,090 in interest, which is why a high-rate loan can make things worse. These are estimates using fixed rates; your actual rate, fees and payment will differ. Test your own numbers with our credit card interest calculator.
How Do You Choose the Right Consolidation Loan?
Work through these steps in order.
- List every debt you want to consolidate. Write down each balance, interest rate and minimum payment so you know the weighted average rate you need to beat.
- Check your credit report and score. The FCAC advises reviewing your credit reports first, since a good history raises your odds of a lower rate. See the credit score range in Canada for what your number means.
- Get quotes from several lenders. Compare banks, credit unions and online lenders using the annual percentage rate (APR), which the Office of the Superintendent of Bankruptcy describes as a standard way to compare loan costs.
- Ask about fees and penalties. Look for origination fees, insurance add-ons and prepayment penalties, and compare the total cost of borrowing, not just the payment.
- Pick the shortest term you can afford. A shorter term means less interest overall, as the $20,000 example shows.
- Improve your approval odds if needed. Correct report errors or pay down a small card first. See how to improve your chances of loan approval.
- Pay off the debts directly. Have the lender send funds to your creditors, then confirm each balance is zero.
- Stop using the old cards. Otherwise you end up with the loan plus new balances.
- Know your fallback. If you cannot get a good rate, look at a debt management plan or review a consumer proposal example. Beware of debt settlement companies. The FCAC says they cannot guarantee to reduce your debts or stop creditor action.
The Bottom Line
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Frequently Asked Questions
What is the best debt consolidation loan in Canada?
The best loan is the one with the lowest APR and fees that still gives you a payment you can afford. For most people that is a fixed-rate personal loan from a bank, credit union or online lender. On $20,000 over 60 months, an 11% rate costs about $6,090 in interest, versus roughly $11,790 at 19.99%.
Can I get a debt consolidation loan with bad credit?
Sometimes, but the rate is usually high. The FCAC notes that a poor credit history may lead to higher rates, and if the rate is above your current debts, consolidating will likely increase your debt. Compare the cost with our loans with bad credit guide and a debt management plan first.
Will a debt consolidation loan hurt my credit score?
It can dip slightly at first because of the credit check and a new account. The FCAC says consolidation may improve your score if you pay on time and reduce the number of high-balance accounts. Set up automatic payments to avoid missed ones.
Is a debt consolidation loan better than a debt management plan?
It depends on your credit and budget. A loan suits people who qualify for a clearly lower rate and can keep up the payments. A debt management plan, usually set up through a non-profit credit counsellor, combines your payments and often reduces interest, which can suit people who do not qualify for a good loan. See whether debt management plans are free.
What debts can I include in a consolidation loan?
Most unsecured debts qualify, including credit cards, store cards, lines of credit and personal loans. Ask each lender which debts it will pay directly.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
