What is Debt Consolidation and Should You Consider It?

For this blog post, we teamed up with Symple Loans, an online lending company with a mission to dramatically improve the personal lending experience for Canadian borrowers. Read our advertiser disclosure.

If you have multiple sources of debt, like high-interest credit card debt, overdue bills and buy-now-pay-later accounts, there are many benefits to consolidating bills into one monthly personal loan payment. Not only does debt consolidation make your payment schedule easier to manage, you could also reduce interest charges and pay down debt faster.

How does debt consolidation work?

Debt consolidation involves taking out a loan to pay off multiple, smaller sources of debt, like credit cards, lines of credit and personal loans. You’re then left with one loan to pay back, rather than lots of small debts to multiple creditors.

The interest rates for debt consolidation loans can often be significantly lower than those of credit cards and other credit products, so a low-interest debt consolidation loan, like the one offered by Symple Loans, can allow you to pay off your debt faster and save money in interest over time.

Let’s look at an example. Imagine Jane is $20,000 in debt across four different sources: two credit cards, a car loan and a line of credit. Each of these debts has an interest rate of 19.99%, so she decides to take out a Symple Loans debt consolidation loan with an interest rate of 10.99%. Over the 5-year term of the loan, Jane could save up to $95 a month in interest. That’s a saving of $5,700 over the loan term!

With rates starting as low as 6.99%, a debt consolidation loan from Symple Loans allows you to pay off your high-interest credit cards and other loans, and accelerate your path out of debt. They offer terms from 1-7 years, and there are no early repayment fees, meaning you won’t be penalized if you end up being able to pay down your debt faster.

What are the benefits of debt consolidation?

Streamline your finances

One of the most stressful parts of being in multiple sources of debt is having to make different payments on different days throughout the month. Consolidating your debt means you only have to remember one monthly payment. Not only does this reduce the stress of having to keep up with multiple due dates, but it also means you’re far less likely to miss a payment, which can have a huge negative impact on your credit score.

Save money

If you pay off high-interest debt with a debt consolidation loan with a lower interest rate, you could save a substantial amount of money over the long term, especially if you’re only able to make the minimum payment on your current debts. 

Pay off debt faster

Once you’ve paid off your high-interest debt with a lower interest loan, more of your repayments are going towards your actual debt, rather than interest. This could considerably speed up your journey out of debt.

Lower your monthly repayments

Consolidating your debt and streamlining your multiple repayments into one monthly payment can mean you’re actually paying less each month, especially if you take out a debt consolidation loan with a longer term. This can help you find some more breathing room in your budget and get your finances back under control.

Less pressure from creditors

If you’ve already had to miss some repayments, you might be getting some pretty scary looking mail arriving through your door. By using a debt consolidation loan to pay off your creditors, you’ll no longer receive demands for payment.

Having an ‘end date’

When you have multiple sources of debt, it can often feel like you’ll never get yourself out again. By consolidating your debt with a loan with a set repayment schedule, you’ll know exactly when you can expect to be debt-free, giving you a goal to work towards.

Does debt consolidation affect your credit score?

While in the short-term, applying for a debt consolidation loan (like applying for any new credit product) can cause a small dip in your credit score, your score will likely benefit hugely from debt consolidation in the long term.

By making your loan repayments consistently, you’ll be building up a strong payment history, which is the biggest factor determining your credit score. Paying off the balances on all your high-interest debt will also lower your credit utilization ratio (how much you’re using of the credit you have available to you), which can give your credit score another boost.

What should I look for when choosing a debt consolidation loan?

The key to successfully consolidating your debt and speeding up your journey to being debt-free is to find a debt consolidation loan with as low an interest rate as possible, and with flexible repayment terms. That’s why we often recommend loans from our partner Symple Loans.

Benefits of a debt consolidation loan from Symple Loans:

• Interest rates starting as low as 6.99%

• Terms from 1-7 years

• No early repayment fees

• A quick, online quote process that won’t affect your credit score

• Receive your funds the next business day

The bottom line

Overall, debt consolidation can be a good idea for you if you have multiple debts with high interest rates and you want to simplify your finances, pay off your debt sooner with lower interest rates and fixed monthly payments, and improve your credit score.