spring financial mobile ad
spring financial mobile ad
Great Rates
Without the Wait
Get a personal loan up to $35,000
e-transferred as soon as today
Google Icon
(4,697 reviews)

Debt Consolidation Calculator

This Page's Content Was Last Updated: January 4, 2024
WOWA Trusted and Transparent
Debt Consolidation Loan Calculator
Loan Name
Balance Owed
Interest Rate
Monthly Payment
Payoff Length
Loan 1
Loan 2
Loan 3
Total Balance
Blended Interest Rate
Total Monthly Payment
Payoff Length (months)
New Debt Consolidation Loan
Interest Rate
Desired Term Length (Months)
New Monthly Payment
Lifetime Interest Saved

Average Interest Rate of Canadian Lending Options

*Estimated interest rate

Source: StatCan

What You Should Know

  • This reduces your monthly debt payment by lowering your interest rate or increasing your term length.
  • You can save time by combining multiple high-interest loans into one payment.
  • However, extending your term length results in more lifetime interest paid.
Best 5-Year Fixed Mortgage Rates in Canada CanadaLeaf
Mortgage Term:

The goal of debt consolidation loans is to lower your debt burden. Consolidation loans enable you to combine multiple debt payments into one loan with a lower interest rate and potentially lower monthly payments. Assuming everything else remains constant, there are two tactics to do this;

  • Decrease your interest rate: Your monthly payment and lifetime interest will reduce.
  • Extend your term length: Your monthly payment reduces but lifetime interest increases.

As such, the holy grail of debt consolidation is refinancing your debt into a lower interest rate loan with a longer term length. The key is paying off a high interest loan using another with a lower interest rate. For example, you may use a HELOC with a 6% interest rate to pay off multiple credit cards at a 19.99% interest rate.

This article will walk you through everything you need to know about consolidating debt. This includes the type of loans available, how to get one, and the best alternatives. By the end of this article, you'll have a clear understanding of the type of loan you need and an action plan to get it.

Get up to $150 in minutes
nyble ad
No credit required.
Build credit history.
Track & check credit score.

Advantages & Disadvantages of Debt Consolidation Loans

  • Lower interest rate
  • Pay to one lender
  • Improved credit score
  • Risk of taking too long to pay off debt
  • Not addressing the root issue
  • Potentially unapproved
  • May need collateral


  • Lower interest rate: This will reduce your lifetime interest paid. Your monthly payment will reduce if everything else remains the same. However, keeping the same monthly payment will pay off your loan faster.
  • Pay to one lender: Consolidating to one loan removes the stress of managing debt with multiple lenders. This will save you time from paying various loans.
  • Improved credit score: Decreasing your debt balance and making consistent payments will increase your credit score.


  • Risk of taking too long to pay off debt: If you stretch out the loan term for too long, you will be paying the debt for longer.
  • Not addressing the root issue: If your debt is too high because of poor financial habits, a debt consolidation loan won't help you in the long term.
  • Potentially unapproved: The lowest interest rates are for borrowers with good credit scores, low debt service ratios, and assets to secure.
  • May need collateral: Some lenders may require collateral in the form of home equity or your car title.

The Three Types of Debt Consolidation Loans

Average Interest RateFunding RangeTerm Length
Balance Transfer Card0.00% - 2.99%$500 - $15,0006 - 12 months
Secured Loan5.88%Up to 85% of home value, 50% of car value6 months - 20 years
Unsecured Loan9.50%$1,000 - $50,0006 - 60 months

Source: StatsCan, December 2022

Balance Transfer

Many balance transfer credit cards offer temporarily low interest rates. These generally have a promotional rate of 0 to 2.00% for roughly seven months. As a result, these cards are a great place to start. However, there are two limitations to balance transfer cards;

  1. Your loan size may be smaller than other options, making them unable to borrow significant amounts.
  2. Many companies only allow you to transfer from other credit cards. The exception is MBNA which enables you to cash withdraw and use the funds to pay off anything, such as a high-interest payday loan.

It's also important to note that missing a payment will end the promotion and increase to the standard rate, typically 19.99%. If you don't miss payments your rate will still increase at the end of the promotional period. However, you can still meaningfully reduce your monthly payments or pay off the principal while the promotion lasts.

If you still have debt at the end of the promotion, you'll need to transfer it to one of the following options to avoid the 19.99% interest rate.

Tip: Personal Loan vs Line of Credit

Many lenders allow you to choose one of two options for debt consolidation. The difference between a personal loan and a line of credit is how you receive the money.

A personal loan gives you one lump sum repaid over a fixed term, while a line of credit allows you to borrow up to a certain amount at a variable rate. You may then make multiple withdrawals from the line of credit and only pay interest on what you use. In short, a personal loan provides more structure, and a line of credit has more flexibility.

Secured Loan

These loans use collateral that you own to reduce the risk for the lender. Common examples include debt consolidation using a home equity line of credit (HELOC). The advantage is that lenders are willing to offer lower interest rates and larger loan sizes than other debt consolidation loans.

The main disadvantage is that the lender could foreclose on your home if you fail to make payments. Therefore, these loans can create significant debt if used without caution. Another example of a secured loan with a higher interest rate is a car title loan.

Unsecured Loan

These debt consolidation loans don't require collateral, making them available to more borrowers than secured loans. However, they typically have stricter requirements and higher interest rates because lenders are taking on more risk.

For debt consolidation, these loans are best used in small amounts and for short loan periods. A good credit score will lower the interest rate and debt service ratio.

Best 5-Year Fixed Mortgage Rates in Canada CanadaLeaf
Mortgage Term:

How Debt Consolidation Loans Work Step-by-Step

The high-level overview of a debt consolidation loan is using a low-interest-rate loan to pay off higher-interest-rate loans. For this to happen, the lower interest rate loan amount should ideally match or exceed the balance of the old loans.

However, even transferring some high-interest debt to a lower-rate loan will average down your interest rate. After this, you switch to a lower interest rate on your loans. The remainder of this section explains the process step-by-step and provides some examples.

  1. Review your old loan(s): You'll want to understand the interest rate you're paying and the total balance of the loan(s). This will give you a general idea of what interest rate and loan size you'll need. Most importantly, you'll want to ensure your old debt is an "open loan". This means there are no penalties for prepaying your loan. If you have a "closed loan," there will be penalties for consolidating to a lower interest rate. You can review our article on open vs closed mortgages to learn more.
  2. Determine the best type of consolidation loan: You'll save the most money by switching to the lowest interest rate. This typically requires securing an asset such as home equity or car ownership. Different loans also have different term lengths, impacting your monthly payment. For example, your monthly loan payments may increase with a lower interest rate if your term length decreases. You can jump to our section on the types of debt consolidation loans to find the best one for your circumstances.
  3. Shop around & get pre-approved: It's essential to research different debt consolidation loan providers and compare rates. It is also helpful to get pre-approved from multiple lenders to understand who will provide you with the lowest rate. Some borrowers may also negotiate with lenders using rates from each other.
  4. Transfer debt & close old accounts: After signing the debt consolidation loan paperwork, you'll be ready to transfer debt and close old accounts. This will stop debt from accumulating on your old accounts and enable you to focus on paying off the debt consolidation loan.
  5. Re-evaluate debt: As you make progress towards debt repayment, be sure to re-evaluate your debt periodically. If your financial situation changes or you come into extra money, consider increasing your payments for a faster debt reduction.

Debt Relief Alternatives

If you can't qualify for more loans or are hesitant to pay around with different types of debt, there are alternatives for you. This section will cover your various options to reduce your debt load. Some borrowers may get creative and combine an alternative with a debt consolidation loan.

Consumer Proposal

A consumer proposal is a binding agreement with your lenders. The process involves a licensed insolvency trustee who will determine the amount of debt you can afford to pay back. You’ll then finalize an agreement with your creditors to set up a payment plan.

Debt Settlement

Debt settlement is a debt relief option that allows debtors to pay a lump-sum payment lower than the outstanding debt amount. For example, if your balance is $10,000 you can negotiate to settle the debt with $7,000. This can be used if you have extra money or trouble repaying debt.

Debt Management Plan

A debt management plan (DMP) is another solution to help debtors manage their debt repayment. With this plan, debtors work with a debt counsellor who will negotiate lower interest rates and monthly payments on their behalf.

The calculators and content on this page are provided for general information purposes only. WOWA does not guarantee the accuracy of information shown and is not responsible for any consequences of the use of the calculator.