You don’t need to be keeping an especially close eye on the news to know that we’re living through a challenging and unpredictable economic climate. Canadians are experiencing a cost of living crisis, while US tariffs on Canadian goods and services are threatening people’s livelihoods and impacting their spending power even further. Against this backdrop, debt consolidation is one approach that can help you manage your personal finances more effectively — and potentially save money in the bargain. In this article, we’ll explore how lines of credit (LOCs) and loans can help you manage your debt during tumultuous economic conditions.
What is debt consolidation?
Debt consolidation combines your existing debts (such as loans and credit cards) into a new facility with a single, more manageable payment. The idea is to simplify your personal finances. Doing so may also help you reduce your monthly repayments and minimize the interest you have to pay.
Debt consolidation: understanding your options
The Financial Consumer Agency of Canada has several suggestions on how people can effectively manage their debt. While the FCAC recommends making a list of your debts, reviewing your budget, and deciding on a strategy to help paint a clearer picture of your personal finances, they also suggest debt consolidation as an effective solution for individuals owing multiple debts with high interest rates.
If you’re considering credit consolidation, two popular options include lines of credit and consolidation loans.
Lines of credit
A LOC is a flexible option that lets you borrow up to a particular limit, and pay interest only on the funds you use. This approach has several key advantages for debt consolidation:
- Lower rates of interest: LOCs often offer lower rates of interest than comparable options such as credit cards or other high-interest debts — helping you reduce your interest payments.
- Flexibility: LOCs allow you to borrow as little or as much as you need, up to a pre-agreed credit limit. This gives you the flexibility to adjust for changes in circumstances and debt levels.
- Revolving credit: A LOC is a revolving credit line, which means you can borrow, repay, and borrow again when you need to.
- Reduced monthly repayments: Consolidating several high-interest debts into a single LOC may result in lower monthly repayments.
Loans
While the major advantage of LOCs is their flexibility, loans for consolidation are more structured — ensuring your debts are paid off over a fixed period of time. Let’s consider the advantages of consolidation loans:
- Fixed repayment terms: Loans feature a fixed repayment schedule, which can represent either a benefit or a drawback depending on your own financial circumstances. Fixed repayment terms mean you’ll know exactly when your debt will be paid off — providing a clear path to paying off your consolidated loans — but they also limit your flexibility, which could be a challenge should your circumstances change.
- Predictability: A monthly payment schedule offers predictability, making it easier to budget and plan your finances during challenging economic conditions.
- Low rates of interest: Like LOCs, loans often offer lower interest rates than credit cards or other high-interest lending — potentially helping you to save money versus your existing loans and credit cards.
You can read more about choosing between a personal loan and a LOC here.
Considering creditor insurance protection
Creditor insurance ensures your LOC or loan stays protected — helping you pay off any outstanding balance in the event of death, disability, illness or involuntary loss of employment. It’s important to consider creditor insurance when taking out a loan or a LOC. It may add a little extra cost, but it can be worth it for the peace of mind it offers knowing that you and your loved ones will be protected during challenging times.
Controlling your financial future
During times of economic turmoil, debt consolidation offers one approach to help you more effectively manage any high-interest debts and take control of your financial future. If you’re concerned about how debt, the rising cost of living, and external forces like US tariffs might affect your personal or business finances, book an appointment with a Coast Capital Advisor today. Our expert advisors can help you assess options including LOCs, loans and more — helping you free up funds to put toward other financial goals, such as saving for retirement or investing in your family’s future.
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Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products. Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing. Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are eligible to be insured under the Canada Deposit Insurance Corporation Act.
