indicatorCredit and Debt

6 steps to consolidating your debt

29 October 2018 3 min read

Updated 2018

Almost all Albertans carry some form of debt, and if you're like most of us, it's probably a lot more than you're comfortable with. Keeping track of your loans, lines of credit, and credit card balances can be stressful, but there are a few ways you can simplify your payments and save money on interest. One of the most popular is debt consolidation.

Debt consolidation is not always the best option. Before you decide to consolidate your debt, learn more about what the process entails and how it works. When you're ready to consolidate, here's how to get started:


1. Understand your spending.

The first step to climbing out of debt is to stop digging the hole. Track your spending over a month or two, and identify a few areas you can save money on. You can accomplish this with the help of online budgeting tools or you can do things the old fashioned way — save your receipts and get your calculator out!

2. Gather your debt details.

Before you consolidate, you need to know your current total debt load (minus your mortgage or secured loans) and the interest rates assigned to that debt.

This step can be painful, so if you're not sure where to start or are scared of what you'll find, talk to a personal banking specialist. They can pull your credit bureau report, review your current debts, and help you keep things in perspective. Remember: in 2016, the average Albertan was carrying $27,583 in consumer debt , so you're not alone.

3. Find out if any of your debts have payout penalties.

With many types of debt, including credit cards and lines of credit, you can pay off your balance at any time without penalty. But with some personal loans, you may be penalized for paying off your debt ahead of schedule.

Check your loan documents or give your lenders a call to see if there are any payout penalties. If there are, ask what the penalty would be. You may find it's worthwhile to pay that penalty and close out that high-interest debt.

4. Sign up for a new, low-interest loan for the amount of debt you want to consolidate.

Your new consolidated loan should have a lower interest rate than your current debts. Shop around to see who offers the lowest interest rate with the most flexible payback options.

Debt consolidation companies are another option. If you decide to go this route, make sure they're a reputable company and, like with any financial decision, read all the fine print.

5. Pay off your high-interest loans using money from your low-interest loan.

Start with your credit cards. Once each card is paid off, consider cancelling it, especially if it has a monthly or annual fee.

Going card-less may not be realistic, so if you need to keep one, sign up for one with a low interest rate and low (or no) annual fee.

Whether you keep a current card or get a new lower-interest card, your goal should be the same: to pay off your balance in full every month. This will help you keep your debt consolidated and easier to manage.

6. Dedicate part of your budget to loan repayment—and aim to increase it at least once a year.

The more money you can put towards your consolidated loan, the more you'll save on interest and the faster you'll be debt free. If you sign up for pre-authorized payments and align those payments with your paycheques, you'll make debt a priority—automatically.


Getting debt-free isn't easy, but if you follow these steps and stick with your repayment plan, you'll soon see some progress.‚Äč

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