Quick answer
The lowest payment is not always the lowest-cost loan. Compare annual percentage rate, fees, term, payment frequency, and total repayment. Debt consolidation helps only when the new overall cost is reasonable and repaid balances are not rebuilt.
- Compare total repayment, not only the monthly payment.
- Read prepayment, late-payment, and optional-product terms.
- Avoid replacing unsecured debt with secured debt without understanding the added risk.
Revolving and installment credit
Revolving credit
A credit card or line of credit provides a limit that can be borrowed, repaid, and borrowed again. Payments and interest costs change with the balance and account terms.
Installment credit
An installment loan advances a set amount that is repaid over a defined term. Payments may be fixed or variable depending on the agreement. Examples include auto loans, personal loans, and mortgages.
Understand the full cost of borrowing
Interest is only part of the cost. Compare the annual percentage rate, mandatory fees, optional products, payment amount, term, and total repayment. A lower monthly payment may cost more overall when the term is longer.
Debt consolidation
Debt consolidation replaces multiple eligible debts with one new credit product. It may simplify payments, but it saves money only when the new total cost is lower and the borrower avoids rebuilding balances on the accounts that were paid off.
Questions to ask before consolidating
- Is the new APR lower after all fees?
- Will the longer term increase total repayment?
- Is the rate fixed or variable?
- Will an asset secure the debt?
- Can the payment fit the budget without using more credit?
Credit Relief Canada is not a lender. Its application may refer information to third-party providers. Compare alternatives, including your current financial institution and reputable non-profit credit counselling.
Official sources
Financial rules and programs change. These primary sources should be used to confirm current requirements.