Debt Consolidation Calculator | Is Consolidating Your Debt the Best Option for You?

How to Use the Debt Consolidation Calculator

Do you find yourself struggling with overwhelming debt? Are your monthly payments too high? Do you owe money to multiple lenders and find it too difficult to keep track of your finances? Is your credit card balance at its limit?

It could be that your debt has become unmanageable as a result of high-interest rates. If you answered yes to these questions, it could be time to take charge of your finances and consolidate your debt.;

With our debt consolidation calculator, enter the details of your payment amount every month. It will then show if debt consolidation is the best option for you. You can add the balance of multiple debts to the calculator. To get accurate results, enter the current balance of the debt, the interest rate, and the monthly payment amount for each of your debts. You will then enter the payment amount you can realistically afford each month.

Examples of the types of debt you should enter into the debt calculator are:

  • credit cards
  • loans with a high-interest rate
  • overdrafts
  • store cards
  • car loans
  • tax debt
  • any other debts with a high-interest rate

Personal Debt Consolidation Calculator

After you enter your information into the calculator, it may ask additional questions. These may be related to your credit score and the province you live in – look for the best deals in Edmonton, Toronto, Calgary, and also BC, Alberta, and Ontario. The calculator will then show your personalized results. You should now see what your monthly payment and the new rate of interest would be if you consolidated your debt. You can adjust the type of loan, the terms, and the rate of interest to personalize the results.;

Once you have your results, you should then research each of the available options to see which one works best for you. There are pros and cons to each option, and not all of the options will be the right fit for you. To help make your decision process easier, we will look at some of the most popular options for debt consolidation below. Other useful tools that can help you achieve financial stability are savings calculators and personal loans calculators, among others.

What is Debt Consolidation?

First, it is important to understand what debt consolidation is. Consolidating debt means bringing all of your existing debts together. They will then become one more affordable monthly payment. This can include credit card debt, loans with a high-interest rate, and your overdraft balance. Owing money to multiple lenders can be stressful. You might also find your current debt has a high-interest rate. This is especially true of credit card debt and payday loans.;

When you are making your monthly payment, much of the money could be paying off the interest rather than the outstanding balance you owe. The result is that the time it will take to repay your debt may increase dramatically. Debt consolidation works by streamlining your debt into one simpler payment per month. It will also hopefully reduce your interest rate.;

The option that works best for you will depend on several factors. These include:

  • your current outstanding balance
  • the rate of interest you currently pay
  • your credit score
  • the monthly payment you can realistically afford

To maximize the benefits of debt consolidation, choose the option with the lowest interest rate and the shortest loan term. Ensure the monthly payment is achievable for you and always pay your balance on time.;

Ways to Consolidate Debt

Home Loans;

Using a home loan for consolidation of debt involves combing your current debt or outstanding balance into your mortgage. This option is only accessible to you if you are a homeowner. Using a home loan to consolidate your debt can be beneficial, especially if the interest rate on your mortgage is lower than the interest rates on your other debt. Your home will then act as a guarantee for your loan. If you cannot make your repayments, your home can be seized as collateral for the balance you owe.;

Home loans typically involve using your home’s equity. Equity is the difference between how much is remaining to pay on your mortgage and the value of your home. Home equity loans usually have a lower interest rate, meaning you can repay your outstanding balance faster. There are several options for using your home to consolidate debt.

  • obtain a second mortgage secured against your home’s equity
  • refinance your property and borrow up to 80% of the equity balance
  • borrow up to the amount that you have prepaid on your mortgage
  • get a reverse mortgage, borrow up to 55% of your home’s value; however, you must be at least 55 years old

Line of Credit

A Home Equity Loan of Credit (HELOC), although similar to a home loan, have some important differences. A home equity loan involves receiving the money to pay off your debt upfront in one lump sum. A line of credit is a form of revolving credit. This means you can borrow money, pay it back, and borrow money again. This is up to a pre-agreed limit. A HELOC is a secured form of credit as you use your home as collateral. This is to ensure you pay the outstanding balance you owe.

You can usually borrow up to 65% of the value of your home. Using a HELOC for debt consolidation should reduce your overall annual interest rate. Although you may find your interest rate goes up and down. A line of credit only requires you to pay a minimum payment each month. If you do this, you will find you are only paying the interest, and the current balance of your loan never reduces. It is therefore recommended to pay the highest monthly payment you can realistically afford.

You may also choose to take a line of credit that is separate from your home. You can use other assets you own to secure the loan, such as your car or any valuable items. It is also possible to have an unsecured credit line, although you will find that the loan interest rate is very high. Your monthly payment is also likely to be higher with an unsecured line of credit.;

Debt Consolidation Loan Through a Bank

If you do not have a low credit score, the debt consolidation calculator may recommend obtaining a loan from the bank. In Canada, a credit score above 650 is usually rated as good, above 725 is very good, and above 760 is excellent. Banks in Canada are famously difficult to obtain loans from. However, they are a great option if you are eligible, as the loan interest rate is usually low compared to other lenders.

For this type of consolidation loan, the bank will give you a lump sum of money that you use to pay off the balance of your other debts. These include, but are not limited to, credit card debt and loans with a high-interest rate. You will then make one monthly payment to the bank.;

Bank loans usually have minimal fees or charges required when setting up the loan. Like other consolidation options, they simplify your monthly payment. They aim to help you pay your current outstanding balance in a more manageable way. The best way to check if a bank loan would be beneficial to you is to calculate your current rate of annual interest. You can then compare this to the annual interest rate on a bank loan.;

Debt Consolidation Loan Through a Finance Company

If your credit score is not high, the debt consolidation loan may not recommend a bank loan as a feasible option for you. Instead, you might be recommended to obtain a loan from a finance company. A finance company differs from a bank as the only service they offer is loans or credit cards. They are also less regulated than banks and do not have their interest rate set by the Bank of Canada.

This means a finance company is likely to offer you a loan with a much higher interest rate. However, finance companies are popular if you cannot borrow money from traditional lenders. You can opt for a loan that requires you to provide collateral, such as your home or car. This means the rate of interest will be lower than an unsecured loan, although still not as low as the loan interest rate from a bank.;

Some finance companies work online only. These are known as online lenders or ‘bad credit lenders.’ They will accept you for a loan even if your credit score is very low. The total interest rate you will pay on your debt will be much higher from these types of lenders. This will result in a higher monthly payment.;

Before applying for a loan from a finance company, ensure you have checked the loan interest rate. Also, pay attention to the monthly payment amount and how long it will take to pay off the current balance of your debt.

Credit Card Balance Transfer

A credit card balance transfer is often recommended for debt consolidation if most of your debt balance is on credit cards. Credit card debt can be particularly difficult to pay off as the rate of interest is usually very high. When you make your monthly payment on your credit card or credit cards, a big percentage of this payment often covers the high-interest rate. Not the card balance.;

A balance transfer credit card will have a very low-interest rate for a promotional period. This means you can transfer the current balance of your other high-interest rate credit cards to a credit card with a low-interest rate. This will help to simplify your debt as you will only be making one monthly payment. The low-interest-rate of this type of credit card will also make it easier to reduce the balance of your debt. This is because more of your monthly payment will be going towards the actual credit card debt rather than the interest.;

However, you should aim to clear your credit card balance by the end of the promotional period (usually 6 – 9 months). After this time, the interest rate on the credit card will rise. This will mean you are once again paying a high-interest rate, which will result in it taking you longer to clear the balance of your credit card.

Debt Repayment Program

A debt repayment program can be beneficial if you feel you cannot get out of debt alone. It helps if you cannot afford your monthly payment and when your rate of interest is high. This payment option is good when your credit card and other debt has become unmanageable, and other debt consolidation plans will not work for you.

In these cases, a debt repayment program maybe your best option. This involves working with a non-profit credit counselling agency.

They will help you consolidate the current balance of your debt into one affordable monthly payment. They will also help you to reduce your annual interest rate. The credit counselling agency sets up a voluntary agreement between you and your lenders. You will pay your monthly payment to the agency, and they will share this payment between your lenders.;

Although a debt repayment program requires you to repay all your debt, including your credit card, it will still hurt your credit score. This is because it suggests you could not keep up with your monthly payment and repay your debt without help. You are therefore seen as high-risk. A debt repayment program will stay on your credit score for up to three years. This can affect the rate of future loans and credit card options.

Debt Consolidation Loans or Debt Management?

Debt consolidation loans and debt management plans are similar in that they aim to help relieve your debt. They both help you to manage your monthly payment or payments and give you more control over your interest rate. However, there are some important differences you should take note of. Debt consolidation loans involve using new credit to help you pay off the current balance of your credit card and other debt. Debt management plans involve using an agency to help with consolidating your debts. They will also help with organizing your monthly payment plan.

Debt consolidation can be done by yourself. Debt management requires the involvement of the credit counselling agency. Both options should help you to reduce your annual interest rate and simplify your finances. Your monthly payment should also become more affordable. So how do you choose the best option for you?

For any type of loan or credit card, your credit score will be an important factor that lenders will take into account. If your credit score is low, you may have no other choice than to opt for a debt management plan. When considering the best option for you, you should also take into account:

  • how high your debt balance is
  • how many different debt accounts or lenders you need to repay
  • the interest rate being offered
  • the monthly payment you can afford
  • the type of debt you have

How Does Bankruptcy Work?

If none of the debt consolidation options work for you, a repayment plan is not an option, and your debt is too high for you to repay, you may have to file for bankruptcy. In Canada, you are only able to file for bankruptcy through a Licensed Insolvency Trustee. Once they have filed for bankruptcy on your behalf, they will inform the relevant government office, as well as all of your lenders and creditors.;

Once you have received the Notice of Discharge, you will no longer be expected to complete the payment on many of your debts. These include your unsecured debts, credit card balance, unpaid bills, retail store cards and some tax arrears. Your secured debt works differently, however. These lenders may be able to seize your property in lieu of payment.;

The bankruptcy note will stay on your credit file for six years. This will affect your ability to obtain any type of credit, including a credit card, in this period. It is important you consider all your options and speak with a Trustee before making a final decision to file for bankruptcy.;

The Bottom Line

If you are unsure whether debt consolidation is the best option for you, using the calculator may help you make your decision. You will be able to see how consolidating your debts will affect your monthly payment and interest rates. You can also see the time period it will take for you to pay off the total balance of your debt.;

Once the calculator has suggested the best options for you, make sure you research them thoroughly before making a final decision. If you decide to proceed with a debt management plan, choose an option with a low-interest rate. Make your monthly payment on time and get into the habit of checking the balance of your debt frequently.

Using the debt consolidation calculator means you are already taking steps to clear your debt. Becoming debt-free and achieving financial freedom and stability is within reach.