If you speak to a certified non-profit credit counsellor for debt consolidation, he/she will give you the option that best works for you. If you qualify, one of the cheapest ways of consolidating your debt in Canada is through a line of credit or an overdraft.
With a line of credit or overdraft, the lender gives you a credit card. This allows you to buy your different loans, bills, and other credit card balances and to combine them into one. Lines of credit and overdraft are either unsecured or secured. The amount you qualify for (and whether you qualify at all) depends on:
Lines of credit and overdrafts are different from debt consolidation loans in that you are not given a lump sum. However, just like a normal loan, you have to make minimum monthly repayments.
More specifically, overdrafts allow your bank account balance to go below zero, essentially working as a credit card once your debit account hits zero. On the other hand, lines of credit act as separate credit accounts which you can draw for if you are ever in need of cash
Overdrafts are usually more expensive than traditional lines of credit, mostly because they are unsecured. Banks, credit unions and other lenders typically charge interest in excess of 20%, just like you get with a credit card. You will also pay a monthly fee for the service.
On the other hand, traditional lines of credit are priced based on the Bank of Canada Prime interest rates. The lender then charges an interest rate that is near this Prime Rate (usually +2% of the Prime Rate). Since the Prime Rate has been so low in Canada over the past few years, some banks are charging as low as 1% for their lines of credit. Borrowers with low net worth or credit scores are paying even in excess of 8%.