Debt Consolidation Newfoundland and Labrador

If you’re struggling with multiple debts and finding it difficult to keep up with payments, debt consolidation could offer a path to financial relief. In Newfoundland and Labrador, there are several options available to help you simplify repayment, lower interest rates, and regain control of your finances. 

In this guide, we’ll walk you through how debt consolidation works, who qualifies, and what alternatives are available if you’re struggling to regain control of your financial situation.

What is debt consolidation?

Debt consolidation refers to the process of combining multiple debt into one single loan or payment plan, making it easier to manage your finances. Instead of juggling multiple payments to different creditors with different interest rates, debt consolidation allows you to make one manageable monthly payment. 

This option is especially useful if you have high-interest debts, such as credit cards, payday loans, or personal loans. These are all pretty prevalent in Canada; according to Statistics Canada, in 2019 nearly three quarters of Canadians (73.2%) had some sort of outstanding debt, or had used a payday loan, at one point over the preceding 12 months.

Debt consolidation can simplify your financial situation and help you regain control of your debts by reducing stress and potentially lowering your overall interest payments.

Newfoundland debt consolidation options

If you’re struggling with multiple debts in Newfoundland and Labrador, there are several debt consolidation options available to help:

Debt consolidation loan

The most common option, a debt consolidation loan involves taking out a new loan to pay off existing debts. The new loan combines all your outstanding balances into one, typically at a lower interest rate than your previous debts. 

This option streamlines the repayment process by reducing the number of payments you have to make each month. A debt consolidation loan can also be an effective way to lower your overall interest costs and pay down your debts faster, particularly if you have a good credit score.

Debt settlement

Debt settlement involves negotiating with creditors to reduce the total amount you owe. It’s typically considered when you’re unable to pay the full amount and want to resolve your debts quickly.

You – or a debt settlement company – work with creditors to settle your debts for less than the total balance, often in exchange for a lump sum payment. 

This option can significantly reduce your total debt, but it will also have a negative impact on your credit. While your debts may be ‘settled’, it will still appear to lenders that you haven’t repaid them in full, which can hamper you when it comes to borrowing in future. 

Balance transfer credit card

A balance transfer credit card allows you to transfer the balances from high-interest credit cards to a new credit card with a lower interest rate, often with an introductory 0% interest rate for a set period. 

This can save you money on interest and help you pay off your debt faster. However, you must be diligent about paying off the balance before the introductory period ends to avoid high interest rates.

Consumer proposal

A consumer proposal is a formal legal agreement where you negotiate with creditors through a Licensed Insolvency Trustee (LIT) to settle your debts for less than the total amount owed. 

The remaining balance will be written off after you make a series of affordable monthly payments for a set time, typically up to five years. This option is useful if you’re struggling to pay your debts in full but want to avoid bankruptcy and the implications that come with it.

Do I qualify for debt consolidation in Newfoundland and Labrador?

To qualify for debt consolidation, you typically need to be carrying multiple unsecured debts such as credit card balances, payday loans, or personal loans. 

A fair to good credit score can improve your chances of approval, especially for a debt consolidation loan. Lenders or credit counsellors will also look at your overall debt level, monthly expenses, and ability to make consistent payments. 

If your credit is poor or debts are overwhelming, other options like a consumer proposal or credit counselling may be more appropriate.

Can I consolidate any type of debt?

Unsecured debts

Debt consolidation works best for unsecured debts, which don’t require collateral. These include credit card debt, payday loans, personal loans, and other lines of credit. 

Unsecured debts can be bundled into one manageable monthly payment through a consolidation loan, consumer proposal, or balance transfer credit card. Consolidating unsecured debts helps simplify the repayment process and can reduce interest rates, saving you money over time.

Secured debts

Secured debts, on the other hand, are tied to assets—like a mortgage or car loan. These can’t usually be included in a standard debt consolidation loan. 

If you have equity in your home, you might be able to refinance your mortgage to pay off other debts. Still, this comes with added risk, as missing payments could lead to losing your home or vehicle.

Always speak with a financial advisor or Licensed Insolvency Trustee to find the safest option based on your debt type.

Do debt solutions like debt consolidation impact my credit?

Yes, debt consolidation can affect your credit score, but often in a positive way over time. Initially, applying for a consolidation loan may cause a dip in your score due to the initial credit check, and the loan being included on your credit report.

However, if you use the loan to pay off high-interest credit cards and avoid taking on new debt, your score can recover and even improve. Overall, debt consolidation can support better financial health and help rebuild your credit profile.

What are the benefits of debt consolidation?

Debt consolidation offers several advantages for people juggling multiple debts. Here are three key benefits:

Streamlined repayment process

Instead of juggling several due dates, lenders, and minimum payments, debt consolidation rolls everything into one simple monthly payment. This makes managing your finances easier and reduces the risk of missing payments, which can damage your credit score. With one loan to track, budgeting becomes less stressful and more efficient.

Better interest rate

One of the biggest draws of debt consolidation is the chance to lower your overall interest rate. Many high-interest debts—such as credit cards or payday loans—can accumulate quickly, making it harder to get ahead. 

In Canada, average credit card interest rates might range from between 19% and 22%. A debt consolidation loan often comes with a much lower rate, depending on your credit score and financial profile. This means more of your money goes toward reducing the principal amount, instead of just covering the interest.

Lower monthly payments

By stretching out the repayment period and securing a better rate, debt consolidation can significantly reduce your monthly payments. This can ease cash flow pressure and give you more breathing room in your budget. 

Alternative debt debt relief options

If debt consolidation isn’t the right fit for your situation, there are several other proven debt relief options available:

Free consultation with a Licensed Insolvency Trustee

Start by booking a free, no-obligation consultation with a Licensed Insolvency Trustee (LIT). These are federally regulated debt restructuring professionals whose job it is to help those struggling with debt find the right solution. 

They’ll review your financial situation, explain your debt help options, and offer you a customized plan to regain control over what you owe. 

Credit counselling

If your debts aren’t too overwhelming, credit counselling may be helpful. You’ll work with a certified credit counsellor who can assist with budgeting, improving financial habits, and potentially creating a debt management plan to repay your creditors in full with one monthly payment.

Consumer proposal

A consumer proposal is a formal agreement filed through a Licensed Insolvency Trustee. It allows you to settle your unsecured debt for less than what you owe by making affordable monthly payments over a set term (up to five years). 

While it won’t make you entirely debt free overnight, it does freeze interest and stop collection efforts on included debts, offering a bit of breathing room.

Bankruptcy

If your debt is unmanageable and other options aren’t viable, bankruptcy might be the right solution. 

It’s a legal process that can eliminate most unsecured debts and give you a fresh financial start, though it does come with severe financial consequences, like damage to your credit score and the potential surrendering of assets. 

How do I know if debt consolidation is the best form of debt help for me?

Whether debt consolidation is the right solution depends on your financial situation and specific debt problems. If you’re juggling multiple high-interest debts and can qualify for a lower-rate loan, consolidation may help. 

However, if your debt is too large or your income too limited, alternative solutions like a consumer proposal or bankruptcy may be more appropriate.

If you’re looking for financial support in Atlantic Canada, it’s important you get help from the professionals. Start by consulting with an expert, who can offer debt advice tailored to your situation and help you choose the solution most suited to your needs.