Debt consolidation costs can vary widely. There is no single price that applies to everyone, even when people consolidate similar amounts of debt. The total cost depends on interest rates, fees, repayment terms, and the type of consolidation used.
This guide explains how debt consolidation costs are structured in Canada so you can set realistic expectations before speaking with a provider.
What Makes Up the Cost of Debt Consolidation
The total cost of debt consolidation usually includes three main parts:
- Interest charged over time
- Fees related to setting up or managing consolidation
- The length of the repayment term
Looking at only one of these factors can be misleading. Understanding how they work together gives a clearer picture of true cost.
Interest Rates: The Biggest Cost Factor
Interest rates usually have the greatest impact on overall cost. Rates can vary depending on whether the consolidation is secured or unsecured and on individual financial factors.
Interest rates are often influenced by:
- Credit history and payment behaviour
- Income stability
- Total debt being consolidated
- Repayment term length
Lower rates can reduce interest paid over time, while higher rates increase long-term cost.
Secured vs Unsecured Consolidation Costs
Unsecured consolidation typically has higher interest rates because no assets are used as security. Secured consolidation, such as using home equity, may offer lower rates but involves greater responsibility.
Understanding this trade-off is important when comparing costs.
Fees You May Encounter
Some consolidation options include additional fees. These may not apply in every case, but they should always be reviewed.
Common fees include:
- Loan setup or administration fees
- Broker or referral fees
- Legal or appraisal fees for equity-based options
Fees can be paid upfront or added to the loan, affecting total cost.
Repayment Terms and Their Impact
Repayment terms affect both monthly payments and total interest.
- Longer terms may lower monthly payments but increase total interest
- Shorter terms often cost less overall but require higher payments
Balancing affordability with long-term cost is key.
Why Comparing Total Cost Matters
Two consolidation options can look similar based on monthly payments but differ significantly in total cost once interest and fees are included. Reviewing the full picture helps avoid surprises.
Note: Rates and costs vary based on your credit profile, available equity, and location.