Consumer proposal vs credit counselling: which is best?

Posted on 16 June 2023

Written by Colin Boulton

Struggling with multiple debts that do not ever seem to disappear? Ready to get rid of your debt once and for all? If you are keen to gain debt relief, you may well have heard of both credit counselling and a consumer proposal. If you are struggling to understand the advantages and disadvantages of both forms of debt relief, here at Spergel we are well placed to support you. We have been helping Canadians gain debt relief for over thirty years, and we are here to help you too. In this article, we share the pros and cons of both consumer proposals and credit counselling. By the end of the article, you should understand the differences between consumer proposal vs credit counselling, and be clearer on which form of debt relief is best for you.

What is credit counselling?

Credit counselling is a form of debt consolidation, primarily restructured via a Debt Management Program. Most often provided through a not-for-profit agency, a credit counsellor will support you to arrange a voluntary repayment program. Debt Management Programs and credit counselling generally works best for Canadians in the following circumstances:

  • Will be able to repay the full amount of their debt, but may just need temporary relief on interest rate
  • Have a small amount of debt – less than $20,000
  • Can afford to pay around 10-15% in credit counselling fees
  • Have too much equity in their property to be able to file a consumer proposal
  • Are not eligible for a second mortgage or debt consolidation loan

Advantages of credit counselling:

  • Clear restructuring of your debt and a plan to handle your finances better in the future
  • Potential for a lower interest rate on your debt
  • Protection from your creditors
  • The ability to budget
  • The education to manage your finances
  • Advice from a financial expert

Disadvantages of credit counselling:

  • The total principal of your debt is not reduced
  • A negative impact on your credit report

What is a consumer proposal?

A consumer proposal is a legal form of debt settlement in Canada in line with the Bankruptcy and Insolvency Act. Filed with a Licensed Insolvency Trustee, it can reduce your unsecured debts by up to 80%. You will work with your Licensed Insolvency Trustee to suggest an affordable monthly repayment to your creditors, and your Trustee will negotiate with them on your behalf. Once approved by your creditors, you will only need to make your manageable payments for a period of up to five years. At Spergel, we have a 99% acceptance rate on any consumer proposals we file. Consumer proposals are best suited to Canadians in the following circumstances:

Advantages of a consumer proposal:

  • You can keep your assets, including your home and investments
  • Manageable monthly payments that reduce your debt by up to 80%
  • You do not need to pay surplus income, unlike in bankruptcy
  • You avoid bankruptcy
  • You are protected from your creditors via a stay of proceedings

Disadvantages of a consumer proposal:

  • It can take longer to complete than a bankruptcy
  • It will have a negative impact on your credit score
  • You need to commit to a consumer proposal, and make your agreed payments each month

For both a consumer proposal and credit counselling, you can book a free initial consultation. While a credit counsellor will assess your budget to see if you are truly able to repay all of your debt in a Debt Management Program, a Licensed Insolvency Trustee will review how much you can afford to pay. As Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, they will also look at alternative options that may work better for you.

Consumer proposal vs credit counselling – a comparison

FeatureCredit counsellingConsumer proposal
Professional supportCredit counsellorLicensed Insolvency Trustee
Debt relief programDebt Management ProgramConsumer proposal
Debt repayment amount100%20% not uncommon
Interest chargesCan be reduced, sometimes waived0%
Service fees10% + an administrative feeIncluded in monthly payments, and regulated by the government
Protection from creditorsCreditors can choose to participate
Credit consequences may still occur
No legal protection
Creditors legally bound
Stops legal action including wage garnishment and bank account freezes
Legal protection
DurationTerms of 24-48 months are common
Must be completed within 60 months
Length dependent on amount of debt – terms of 60 months are common
Can be repaid early at any time
Impact on credit scoreA R7 rating for 2 years after completion
Can get new credit, but some credit counsellors may ask you not to do so
Credit counselling resources widely available
A R7 rating for 3 years after completion, or 6 years from the date of filing (whichever is first)
Apply for new credit any time
Credit counselling provided

Spergel’s highly experienced Licensed Insolvency Trustees will help you to understand the differences between consumer proposal vs credit counselling. Book a free consultation to learn more about your debt relief options that you can choose the best option for you and your financial circumstances. We approach all individuals with compassion and understanding. Reach out today – you owe it to yourself.


Colin Boulton

Colin Boulton is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on unemployment and wage garnishments and manages Spergel's offices in Eastern Ontario (including Oshawa, Peterborough, Lindsay, Ajax and Scarborough). When not at the office helping clients cross their debt-free finish lines, Colin enjoys training for and participating in triathlons.

Schedule a Free Consultation with Colin Boulton (or your local Spergel LIT) by:

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