Should I Get a Debt Consolidation Loan to Pay Off My Credit Cards?

If you have a lot of credit card debt, the solution could be to get a debt consolidation loan.

A debt consolidation loan can help you pay all of your credit cards back at once—but it isn’t the right solution for everyone.

Let’s discuss the pros and cons of a debt consolidation loan, in addition to your other options.

What Are Personal Debt Consolidation Loans?

A debt consolidation loan is a personal loan you take out in order to pay off other debts. It’s an installment loan, which means you’ll need to pay it off during a set term, such as 48 months.

Debt consolidation loans can save you money by letting you transfer your debt to a lower interest rate. It’s a form of debt management you can use to pay off debts without going through bankruptcy.

How Does This Help Me Pay Off My Credit Cards?

Rather than paying off individual credit cards, you can instead pay off all of your credit cards at once with a consolidation loan.

From there, you’ll only need to make a single monthly payment on the consolidation loan.

Since the consolidation loan will be at a lower interest rate, you’ll be paying less overall. However, you’ll have to qualify for the consolidation loan.

How Does This Affect My Credit Rating?

Your credit score will likely go down temporarily after a consolidation. Opening a new account usually hurts your credit score a little, because the average age of your accounts will go down (and you’ll have a new credit pull on your report).

However, it should recover and begin to go up shortly thereafter. Your other credit accounts will show as being paid off, which will be a good thing—and you’ll be paying off your debt faster, due to the lower interest rate.

There’s one exception: if the lender requires that you close your credit accounts to get a consolidation loan. If this happens, your credit score will probably drop significantly initially (because the average age of your accounts will go down), but you’ll still see it going up with time.

What Are the Benefits of Personal Debt Consolidation Loans?

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  • You are able to reduce your total debt payments by getting a lower interest rate.
  • You can create a plan to get debt-free within a certain amount of time.
  • You will be able to pay off your credit cards all at once.
  • What are the cons of personal debt consolidation loans?
  • You need a fairly good credit score (or a co-signer) to get a debt consolidation loan.
  • You will still need to pay back all of your debts eventually.
  • You will have a monthly payment to manage.


Why People Are Declined for Debt Consolidation Loans

Debt consolidation lenders understand that many people they assist have bad credit scores, but that doesn’t mean it’s trivial to get a debt consolidation. There are a number of reasons why someone might get denied.

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  • Lack of security/collateral. Some consolidation loans need to be secured with the value of something else, such as an automobile or a home. If you’re paying off credit cards without security or collateral, you may need a co-signer.
  • Poor credit score and debt payment problems. A consolidation loan is really for those who want to pay off credit card accounts but who aren’t already seriously underwater. If you have a very bad credit score and are late on all your payments, a lender may be disinclined to give you a loan.
  • Income too low. You do need to be able to pay off the consolidation loan itself. If the lender doesn’t think you can do this with your current income, they’re likely to deny your request.
  • Lack of credit history in Canada. If you can’t show that you’ve been responsible with credit in the past, a lender will be less likely to give you a large consolidation loan.
  • Too much debt. While it may seem contrary, a lender may decline you for too much debt; this comes back to having too little income to pay off that debt.


If you’re looking into how to pay off credit cards, you may already have issues with creditworthiness that make it difficult to get a consolidation loan.

Some Alternative Options For Consolidating Credit Card Debt

If you can’t get a consolidation loan, there are still other ways to consolidate your debt:

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  • A home equity loan, or adding the debt to your mortgage. Home equity loans are often easier to get than personal loans; if you have equity in your home, it’s often the best way to pay off credit cards.
  • A line of credit. If you have equity in your property or some other real estate, you may also be able to get a secured line of credit. This can be used to pay off your current debts.


In reality, any loan or line of credit can be used for the purposes of consolidation, as long as the interest rate is lower than your average credit card interest rate.

Get Help From Trusted Licensed Insolvency Trustees

A Licensed Insolvency Trustee will look at your current financial situation and figure out the best solution for you. If not a debt consolidation, it may be a debt management plan, debt settlement, or even bankruptcy: they can give you advice customized to your situation.

If you’re trying to figure out how to pay off credit card debt, a consolidation loan may be a good option. But it’s difficult to tell without exploring all of your options. Connecting with a Licensed Insolvency Trustee can help. Licensed Insolvency Trustees can give you advice tailored to your personal situation.

Baker Tilly Ltd. is an Ottawa- and Easter Ontario-based Licensed Insolvency Trustee. It provides free initial consultations, personal customized solutions, and substantial experience and expertise eliminating debt, in particular, debt settlement proposals to avoid bankruptcy for CRA and other challenging debt matters.

Baker Tilly’s passion—its mission—is your health and well-being!