This is commonly done using a new debt consolidation loan. Other options, such as a debt management plan, can also combine payments without providing a new loan. If you cannot afford to repay your unsecured debts in full, an alternative such as a consumer proposal may provide more suitable relief.

Spergel does not provide debt consolidation loans. Our Licensed Insolvency Trustees help Canadians understand all their debt relief options, including what may be available if a consolidation loan is unaffordable or you do not qualify.

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Is a debt consolidation loan or a consumer proposal better?

A debt consolidation loan may be suitable if you have a stable income, qualify for a lower interest rate, and can afford to repay everything you owe.

However, a debt consolidation loan will not reduce the principal you repay or provide legal protection from creditors.

A consumer proposal may be more appropriate if you cannot repay your unsecured debts in full, cannot qualify for an affordable consolidation loan or need protection from collection action.

Explore the pros and cons of debt consolidation before deciding.

Debt consolidation vs consumer proposal

Overview

What debts can be included in a debt consolidation loan?

The debts you can include will depend on the lender, the loan product, and whether you qualify. A debt consolidation loan may be used to repay unsecured debts such as:

Credit card debt
Personal loans
Payday loans
Medical bills
Unsecured lines of credit
Outstanding utility or phone bills
CRA/tax debts

Secured debts, such as mortgages and secured car loans, are not normally included in an unsecured consolidation loan. Whether tax debt or other outstanding accounts can be consolidated will depend on the lender and the debt solution used.

Consolidating several debts may make your payments easier to manage. A lower payment or interest rate is not guaranteed, however, so it is important to compare the interest rate, fees, repayment period, and total cost.

Exemptions

eligibility criteria

Who qualifies for a debt consolidation loan in Canada?

Approval for a debt consolidation loan generally depends on the lender’s requirements. A lender may consider:

Your income and employment
Your credit history and credit score
Your existing debts and monthly expenses
The amount you want to borrow
Whether you can afford the proposed payments
Whether collateral or a co-signer is required

What to do if you’re declined for a loan

What options are available if you want to consolidate debt?

People searching for debt consolidation may be considering several ways to simplify their payments. Some involve taking out new credit, while others provide an alternative when repaying the debt in full is no longer affordable.

Debt consolidation loan: a new loan used to repay several existing debts. You repay the full loan, plus interest.

Line of credit: a revolving form of borrowing that may be used to repay higher-interest debts.

Balance-transfer credit card: moves eligible credit card balances to a new card, sometimes with a temporary introductory interest rate.

Debt management plan: combines eligible unsecured debts into one payment through a credit counselling agency. You generally repay the principal in full, although some interest may be reduced or waived.

Consumer proposal: not a consolidation loan, but a formal alternative that may reduce the amount of eligible unsecured debt you repay, stop interest and provide legal protection from included creditors.

If you cannot qualify for affordable borrowing or your debts are too high to repay in full, a Licensed Insolvency Trustee can assess whether a consumer proposal or another debt solution may be suitable.

Debt consolidation vs consumer proposal: what’s the difference?

A debt consolidation loan and a consumer proposal can both simplify several debts into one monthly payment, but they work very differently.

With a debt consolidation loan, you take out new credit to repay your existing debts. You then repay the full loan balance, plus interest. A consumer proposal is a federally regulated debt relief process that may reduce eligible unsecured debt by up to 80%, depending on your circumstances and creditor approval. Interest stops on included debts when the proposal is filed.

Feature	Debt consolidation loan	Consumer proposal
How it works	Replaces several debts with one new loan	Creates a legally binding repayment agreement with unsecured creditors
Amount repaid	The full amount borrowed, plus interest	An agreed portion of eligible unsecured debt
Interest	Interest applies at the lender’s rate	Interest stops on included debts when the proposal is filed
Credit requirements	Approval usually depends on credit, income, and affordability	No minimum credit score is required
Creditor protection	Does not provide legal protection from creditors	Provides legal protection from most collection action on included debts
Assets	Collateral or a co-signer may sometimes be required	You retain control of your assets, although their value is considered
Provided or administered by	A bank, credit union or other lender	A Licensed Insolvency Trustee
May suit you if	You qualify for a suitable loan and can repay your debts in full	You cannot afford to repay your unsecured debts in full

next step

How do I get started?

The first and most important step is to speak with a Licensed Insolvency Trustee.

(LITs) Licensed Insolvency Trustees are the only professionals in Canada legally authorized to administer debt relief solutions like consumer proposals, and they can help you assess the best path — including debt consolidation options. At Spergel, our experienced Licensed Insolvency Trustees offer:

Free consultations
Support tailored to your unique situation
A clear explanation of all your debt consolidation options
Help choosing between loans, proposals, and management plans
A simple, no-pressure environment to ask questions

Everyone’s situation is different. Let’s talk about you.

Book a free call with Spergel today, and we’ll create a personalized plan to help you take back control.

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Real Canadians. Real Success — like Chelsey

“I am immensely grateful to the Spergel team for guiding me through a challenging financial crisis with empathy and expertise. From negotiating with my creditors to providing emotional support and financial education, Spergel transformed my situation from imminent bankruptcy to renewed stability. Spergel is not just a service; they are partners committed to empowering individuals through complex financial journeys, and boy, was mine complex.”

– Chelsey B., British Columbia

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How do debt consolidation loans and consumer proposals affect your credit?

Applying for a debt consolidation loan may result in a hard credit check and a new account appearing on your credit report. Making the agreed payments on time may help you build a positive payment history, while missed payments can further damage your credit.

A consumer proposal has a more significant, defined effect on your credit because it is recorded as a formal insolvency proceeding. The overall effect on your credit therefore depends on the option you choose and how you manage its payments.

Debt consolidation FAQs

Can I get a debt consolidation loan with bad credit?

It may be possible, but you may receive a higher interest rate, need collateral or require a co-signer. If the new loan would not reduce your overall borrowing costs, another debt solution may be more suitable.

Does a debt consolidation loan reduce the amount I owe?

A standard consolidation loan does not reduce the principal owed. You repay the full amount borrowed, plus interest and any applicable fees.

Can CRA debt be consolidated?

You may use a loan to repay CRA debt if a lender approves the required borrowing. CRA debt may also be included in a consumer proposal in many circumstances.

Get answers to more debt consolidation questions

What should I do if a debt consolidation loan is not suitable?

If you want to apply for a debt consolidation loan, you will need to contact a bank, credit union or other lender. Spergel does not provide or arrange consolidation loans.

If you have been declined, cannot obtain an affordable interest rate or cannot afford to repay your debts in full, speak with a Licensed Insolvency Trustee. A LIT can review your income, expenses, assets, and debts before explaining every suitable debt relief option.

At Spergel, your consultation includes: