Debt Consolidation Loans in Canada: Combine Your Debts Into One Payment

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✍️ Written & fact-checked by the LoanWave Editorial Team · Last reviewed October 8, 2026 · Sources: Bank of Canada, FCAC, OSB, Equifax Canada

A debt consolidation loan replaces several debts — credit cards, payday loans, store cards — with one loan, one payment and one end date. If the new loan has a lower interest rate than your current debts, more of every payment goes toward the balance instead of interest.

📘 This article is part of our complete guide to debt relief in canada.

How debt consolidation works

1. You’re approved for a loan large enough to cover your existing debts.
2. The funds pay off those balances (sometimes the lender pays creditors directly).
3. You repay the new loan in fixed instalments over a set term — often 2 to 5 years.

Example

Imagine you owe $15,000 across three credit cards at around 20% interest, making minimum payments. Minimum payments on credit cards can stretch repayment out for many years. With a consolidation loan at a lower fixed rate over 4 years, you’d have a predictable payment and a clear debt-free date. Exact savings depend on the rate you’re offered — always compare the total cost.

Pros and cons

Pros
• One simple monthly payment
• Potentially much lower interest than credit cards
• Fixed payoff date
• Can improve credit utilization and your score over time

Cons
• You need to qualify; rates depend on credit
• Doesn’t reduce the amount you owe
• Risky if you run your cards back up afterward

Who should consider it?

Debt consolidation works best if you:

• Have steady income to cover the new payment
• Have fair to good credit (or a co-signer or collateral)
• Owe an amount you could realistically repay in 5 years
• Are committed to not adding new credit card debt

If your debt is larger than you can repay, look at other debt relief options in Canada, including credit counselling and consumer proposals.

Other ways to consolidate

• Balance transfer credit card — a low promo rate for a limited time; good for smaller balances you can clear quickly.
• Home equity line of credit (HELOC) — lower rates for homeowners, but your home secures the debt.
• Debt management plan — through a non-profit credit counsellor; may reduce or eliminate interest.

How to compare consolidation loans

• Compare the APR, not just the interest rate
• Check for origination fees and prepayment penalties
• Make sure the payment fits your budget with room to spare
• Close or lock away paid-off cards if you’re tempted to reuse them

LoanWave is a free comparison service — not a lender. We’ll show you consolidation and debt relief options you may qualify for, at no cost.

Sources & methodology

This guide was researched and fact-checked by the LoanWave editorial team against Canadian government sources, federal law and national credit bureau data. Figures are the latest published at the time of review; lender rates and terms change often, so always confirm the final cost in your loan agreement. Example calculations use standard amortization formulas and are for illustration only. LoanWave earns referral commissions, but partners do not review or approve our editorial content.

1. Office of the Superintendent of Bankruptcy Canada
2. Wealth Professional — Consumer insolvencies top 140,000 (OSB data, 12 months to Jan 31, 2026)
3. Wealth Professional — Canada's consumer debt hits $2.68 trillion in Q2 2026 (Equifax data)
4. Financial Consumer Agency of Canada — Credit reports and scores
5. Cassels — Changes to Canada's criminal rate of interest (35% APR, Jan 1, 2025)

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