When to consolidate debt: Real-life case

We often wonder when we should consolidate our debts. The first thing that should prompt us to consider debt consolidation is if you have significant balances on your credit cards. As you might already know, credit cards are one of the most expensive credit instruments out there. If you don’t pay your balance in full every month, you’re likely paying around 20% interest on those balances and any new purchases. The minimum payment may give you the illusion that everything is under control, but in reality, if you stick to that amount, you’ll be paying a lot of money for a long time!

When to consolidate debt?

Here’s the real case of Rebecca**, a young teacher in her thirties, gradually increased the balance on her credit cards, which now totals $10,000. In addition, she has a $5,000 loan, taken out to furnish her new apartment. This debt left her feeling overwhelmed, and she decided to take action.

Feeling trapped and well aware that her financial obligations were not going to decrease, she decided to seek advice from a licensed insolvency trustee’s office. Her biggest fear? Having to declare bankruptcy… Fortunately, that’s not the only option available to her.

Assess the situation

The trustee helped her paint a picture of her financial situation, then identified the causes of her financial difficulties so they could be better contained, and finally proposed solutions.

He 1st noticed that with a monthly rent of $800 and an annual salary of $52,000, Rebecca was struggling to make ends meet. To give her some breathing room, he recommended reducing some expenses in her budget but also lowering her debt ratio, which currently stands at 39%, which is very close to the 40% acceptable limit for financial institutions.

To reduce her debts, he suggested that she apply for a $9,900 consolidation loan from her bank to pay off her 3 credit cards. So, instead of having to make $300 monthly payments, the repayment of this loan over a 60-month period would result in $230 monthly payments. “However, we did not include the $5,000 debt from the personal loan because its interest rate (around 9%) is lower than that of the consolidation loan (around 13%). It would not have been good for her,” says Pierre Fortin, a licensed insolvency trustee, president of Jean Fortin and Associates. On her part, the personal loan represents payments of $210, and it will be fully paid off in 27 months.

Another recommendation was to keep only one credit card and cancel the other two to avoid the temptation of spending and getting into debt again. “Ideally, keep the one you’ve had for the longest time, as an account that has been open for a long time carries more weight in your credit report,” advises Pierre Fortin.

Repayment plan

With this repayment plan, Rebecca will gradually regain some financial freedom as her debts start getting paid off. In addition to the personal loan (27 months) and the consolidation loan (60 months), Rebecca must also repay an auto loan ($300 over 40 months), for total payments of $740. She will have to tighten her belt, especially during the first 27 months, but the situation remains manageable.

Relieved of not having to declare bankruptcy, Rebecca assures that she will follow the trustee’s advice. The trustee reminds us that due to easy access to credit, we can easily be drawn into the debt spiral.

“We must remain vigilant and remember that every time we spend money that is not ours – credit – it represents a significant cost in interest rates, and sometimes it takes years to get out of it,” says Pierre Fortin.

Visa $1,800 19% $55
MasterCard $4,300 18% $130 
MasterCard $3,800 20% $115

Personal loan for furniture purchase (ends in 27 months)


9% $210
Total $14,900   $510



$12,000 Auto loan – $12,000, $300 repayment over 40 months 
Furniture $10,000 (new value) Not subject to seizure
RRSP $4,500 Not subject to seizure


**The names have been changed to protect their identity. **