Credit Card Debt Consolidation – Explained

Jordann Brown
by Jordann Brown November 7, 2018 / No Comments

Credit cards are an important part of your financial arsenal, and they can be excellent tools to bring you closer to your financial goals. Travel rewards credit cards can be used to accumulate points for free flights and cash back credit cards could fund your Christmas budget. Some of the best credit cards in Canada offer extensive insurance coverage and perks that will save you during your next emergency.

But like all powerful tools, credit cards must be used wisely. If you aren’t disciplined with your credit card spending, and you don’t pay off your balance in full every month, you’ll incur interest charges. Those interest charges, combined with the existing balance, could result in the steady accumulation of credit card debt.

If this sounds like your financial situation, you aren’t alone. Over half of all Canadians carry consumer debt, according to a Global News poll, with the average Canadian owing $8,539.

If you’ve got credit card debt that you want to pay off, but the high monthly interest charges are slowing your progress, you have options. You could tackle the debts head on, or you could consolidate your debts into a single, lower interest debt and make payments until it is gone once and for all. This strategy is called credit card debt consolidation, and it’s a good option if your ultimate goal is credit card debt freedom.

What is credit card debt consolidation?

In the simplest terms, credit card debt consolidations works by combining several of your credit card debts into a single, low-interest loan. This loan could be in the form of a line of credit, a low-interest credit card, a balance transfer credit card, or even a home equity line of credit (HELOC).

Is it smart to consolidate credit card debt?

There are several benefits to credit card debt consolidation. The first is simplicity. Instead of juggling several payments at once and deciding which debt to prioritize first, consolidating your debts means you’ll have a single payment to make, and all of your extra payments will go towards this debt until it’s gone. This linear progression makes it easier to predict when you’ll pay off your debt once and for all.

The second benefit to debt consolidation is that you can usually put your debts together on a single, lower interest product. Most credit cards have interest rates in the range of 19.99%, but if you transfer your debt to a line of credit, a low-interest credit card, balance transfer credit card or a HELOC, the interest rate you’ll pay on your debt could be as low as 0%.

For example, let’s say you have a $5,000 balance on a credit card with an interest rate of 19.99%, and a $2,000 balance on a credit card with a 21.99% interest rate. At those interest rates, you’ll pay $118.29 in interest charges per month.

Alternatively, if you transfer your $7,000 in credit card debt to a balance transfer credit card with a promotional interest rate of 1.99%, you’ll pay only $11.50 in interest charges per month. The lower interest rate means a greater proportion of your payment goes toward paying down the principal and less towards paying interest.

While debt consolidation can be a great way to get out of debt quicker, it does have one drawback. The drawback is that you may be tempted to continue to overspend on your original higher interest credit cards, – running up your debt even more. You can avoid this temptation by lowering your credit limits on your other credit cards after you transfer the balances.

The best way to consolidate credit card debt

If you’ve been struggling to pay off your credit card every month, and you think that consolidating your credit card debt is a good strategy, here’s how to do it correctly.

First, determine which alternate debt tool is best for you. There are several options, each with benefits. You could use a line of credit, a low-interest credit card, a balance transfer credit card, or a home equity line of credit.

If you’re looking for the absolute lowest interest option, a balance transfer credit card with a promotional interest rate below 2% is the right choice. There is one caveat: if you choose this option, make sure only to transfer an amount that you are confident you can pay off during the promotional period, otherwise you may end paying extra interest on the remaining balance when the promotional period ends. The MBNA True Line Mastercard is a no fee credit card that currently ranks at the top of our list of the best balance transfer credit cards in Canada.

True Line® Mastercard®


  • No annual fee
  • Card holders could get a 0% promotional annual rate on balance transfers (plus a 1% fee or a minimum of $7.50) for the first six months. 12.99% rate applies thereafter
  • 12.99% purchase interest rate
  • Around the clock protection against fraudulent charges

The next step is to reduce the credit limits on your existing credit cards. Reducing your credit card limits eliminates the temptation to continue to overspend while you’re paying down your debt.

Once you transfer your balance, you should do everything you can to pay off the debt before the promotional interest rate expires. Any extra money you earn should go towards paying off the debt, and you should reduce your spending to free up extra cash to send towards your debt. If you don’t pay off your debt during the promotional term, you should move the remaining debt to a line of credit, a low-interest credit card, or another balance transfer credit card, to avoid incurring interest charges.

Keep making payments on your credit debt until it is finally paid off. Once you pay off your consolidated credit card debt, you need to address the root of the problem: your overspending. Take a hard look at why you are overspending in the first place. Are you living beyond your means? Do you need to earn more money?

Once you determine the cause of your credit card debt, you can take steps to ensure you don’t make the same mistakes again and begin building your financial future.

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