Debt has a way of piling up.
You start with one credit card. Throw in another. Before you know it, you’re juggling five or six different payments every month, each with its own due date and interest rate. I work with a lot of clients who are facing some real stuff in life, and it just happens.
What we love doing is helping them start down a path of getting out from under crushing debt loads.
What is debt consolidation?
Typically, you’re having to send five separate payments to creditors. Debt consolidation simplifies managing your finances. The new loan interest rate should be lower than your current debt rates. The goal is to lower your interest payment.
That all sounds great, right?
It can be. But here’s the thing: you can’t take on any new debts while you’re paying off the consolidation loan. You can’t consolidate everything and then immediately start running up your credit cards again. That’s how people end up in worse shape than when they started.
All that said, here are three things you need to know about debt consolidation.
1) The Difference Between Unsecured and Secured Debts
Debt consolidation works by taking out one loan to pay off multiple smaller debts. Most of those smaller debts you’re paying off are what we call unsecured debts.
What’s an unsecured debt? It’s money you owe that isn’t tied to any specific asset. There’s no collateral. Credit cards, personal loans from places like Easy Financial or Fairstone, medical bills, and property tax arrears are all unsecured debts.
Now, when you consolidate those debts using a second mortgage, you’re turning unsecured debt into secured debt. Your home serves as collateral for the loan.
Here’s why that matters: unsecured debts typically carry the highest interest rates because the lender has no collateral to secure them. Credit cards might charge interest rates of 19-28%.
Property tax arrears are even worse. They accrue at 2% per month, plus penalties, resulting in over 30% annually in most cases. We see clients behind on their property taxes all the time, and those penalties pile up fast.
When you consolidate using home equity, you’re replacing those 20-30%+ interest rates with something closer to 10-12%. That’s the power of secured lending.
We’re very honest about whether or not debt consolidation is a good fit for you. We don’t want you to drown in interest payments, never able to bounce back.
2) The different types of loans for debt consolidation
Now that you understand unsecured debts, it’s important to know that there are a handful of types of loans you can use for debt consolidation.
Home Equity Debt Consolidation
Home equity debt consolidation functions as a financial solution for homeowners. This is the type of debt consolidation we use. So, let’s run through a hypothetical for a homeowner. Here are their debts (I see examples like this a lot):
- $15,000 on a credit card at 22% interest
- $8,000 on another credit card at 19% interest
- $5,000 personal loan at 15% interest
- $2,000 on a department store card at 28% interest
The homeowner’s monthly payments exceed $900, with most of the payment going toward interest. They’re having trouble paying off the principal. Meanwhile, they have some equity in their home that can help.
The amount they can borrow depends on the home equity and the property’s location.
We use a loan-to-value ratio (LTV) to determine the maximum you can access. Our standard maximum is 75% LTV for most properties.
Here’s the math:
If your home is worth $400,000, we’d lend up to $300,000 total (75% LTV). If you owe $250,000 on your first mortgage, you could access up to $50,000 through a second mortgage.
But that 75% isn’t set in stone. It depends on where your property is and how marketable it is.
In major centers like Edmonton and Calgary, if your home is reasonably priced and marketable, we might go as high as 80% LTV. That would give you $320,000 total, or $70,000 available to consolidate your debts.
On the flip side, if you own property in a smaller community that would be harder to sell quickly, we might cap it at 50% LTV to protect both of us. In that case, you’d have much less available to borrow. This is the reality of using secured assets for debt consolidation.
The takeaway?
Location and property value matter when figuring out how much you can borrow.
Using Personal Loans
You’ve probably seen ads from lenders like Easy Financial or Fairstone for personal loans to consolidate debt. These are unsecured loans that you can use to pay off your debts.
Here’s the problem: if your credit has taken some hits, which is often why people need consolidation in the first place, you’ll either get turned down or offered an interest rate that’s barely better than what you’re already paying.
I’ve seen people get approved for personal loans at 14-16% interest when they’re already paying 18-20% on their credit cards. Sure, it’s an improvement, but not much of one. And those monthly payments can be steep.
That’s why most borrowers turn to home equity instead. Private lenders like us are more flexible and the rates are often similar or better, with much more manageable payment options.
Debt Consolidation Loans
Debt consolidation loans are personal loans designed to combine multiple debts into a single payment. They’re built for people drowning in credit card balances and other high-interest obligations.
Here’s how they’re supposed to work: You apply for a loan large enough to cover all your existing debts. If approved, you use that money to pay everything off, leaving you with just one monthly payment to one lender.
The appeal is obvious: simpler payments and a clearer path to being debt-free.
But there’s a catch.
These loans require good credit to qualify. The very people who need debt consolidation the most are often the ones who get turned down.
Even if you do get approved with less-than-perfect credit, the interest rate offered might not be much better than what you’re already paying. Banks approve consolidation loans at rates that save borrowers fifty or sixty dollars a month. That’s not nothing, but it’s not worth it in most cases.
And if your debt-to-income ratio is already stretched thin, adding another fixed payment can sometimes make things worse, not better. That’s why many Alberta homeowners with equity turn to secured options instead. The approval standards are more flexible when your home backs the loan.
3) Debt Consolidation Application Process
Applying for a debt consolidation loan through home equity is similar to applying for any mortgage. The paperwork might feel familiar if you’ve been through this before.
You’ll need to provide:
- Proof of income and employment
- Details about your existing debts (balances, minimum payments, interest rates)
- Information about your first mortgage
- Your home’s current market value (usually requires an appraisal)
- Your credit history and score
I know, it seems like a lot. But having everything organized actually speeds things up and helps us find you the best possible solution.
Here’s where things work differently from a bank: we focus on your equity.
Traditional lenders pull your credit report. They look at your debt service ratios. They go over to their keyboards and clack away to enter the numbers into their system, then make a quick yes-or-no decision. Your application gets about 5 minutes of actual human consideration, even though they put on a show to make it seem longer.
Private lenders like us look at the full picture. We want to understand what happened. Did you lose a job? Go through a divorce? Deal with medical expenses? These aren’t excuses. It’s context. And it’s how we do everything with transparency.
We’re in the business of helping people who’ve been told no by their banks. That’s literally what we do every single day.
The approval process typically takes a few days. We’ll walk you through every step.
What sets us apart: breathing room when you need it most
Here’s something that sets us apart from other lenders: we can offer a no-payment window on your debt consolidation loan.
Typically, we offer up to 3 months with no payments required. If you have sufficient equity, we can extend that up to a year.
Think about what that means. You consolidate all your debts into one loan. Then you get 3 months to a year without having to make any payments at all.
This breathing room gives you a chance to:
- Rebuild your savings
- Get caught up on other expenses
- Stabilize your income situation
- Actually recover from whatever financial crisis put you in this position
For people who’ve been drowning under multiple monthly payments, this feature is life-changing. It’s the difference between treading water and finally being able to catch your breath.
So, if you are interested, make sure to fill out the form to the right of this post to learn more.
