What is the difference between consumer proposal and debt consolidation?

Posted on 2 November 2021

Written by Graeme Hamilton

When debt begins to pile up and interest payments become too much, what are your options for debt relief? Do you want to consolidate credit card debt and other unsecured debts into one more manageable payment? What can a consumer proposal do for you? And what is the difference between consumer proposal and debt consolidation? While debt consolidation combines your various different debts into one to simplify and reduce interest rates, a consumer proposal is a revised monthly payment agreed with your creditors in exchange for clearance of any remaining debt you may have. In this article, we will explain the difference between consumer proposals and debt consolidation, and help you understand which option may be best for you.

What is debt consolidation?

Debt consolidation in Canada is, as the name suggests, a way of consolidating credit to simplify your monthly debt repayments. There are a few variations of debt consolidation, but the primary form is a debt consolidation loan. A debt consolidation loan is a new loan that is taken out to condense multiple different debts into one monthly payment. When applying for a debt consolidation loan, the bank will review your application and decide on whether to approve an application. Two of the factors they will consider include your current employment status and any assets or a co-signor to secure the loan. The advantages of a debt consolidation loan include simplifying your payments, and most often a reduction or complete clearance of interest rate to decrease your overall debt repayments. In order to gain a debt consolidation loan, you must have a steady income and be capable of paying your payments including any related interest. You may also spread your payments across a longer timespan to make them more manageable.

What are the disadvantages of debt consolidation loans?

As debt consolidation loans are essentially refinancing your debt, it does ultimately mean that your debt will remain despite simplification. Should you for any reason be unable to meet the terms of your new debt consolidation loan, you could also risk any assets you need to put forward as security against your loan. Other disadvantages of a debt consolidation loan include the fact that you must continue to make your debt payments, including any interest. Depending on the debt consolidation loan you manage to secure, you may also have a high interest rate, and your monthly payment will not necessarily be manageable. In worst case scenarios, you may not even qualify for a debt consolidation loan, or be able to borrow a sufficient amount to handle your debt. For these reasons, a debt consolidation loan may not be the best form of debt relief for you.

What is a consumer proposal?

A consumer proposal is a legal form of debt settlement, backed by the Bankruptcy and Insolvency Act. It is a formal deal put in place with your creditors on your behalf by a Licensed Insolvency Trustee. The aim of a consumer proposal is to clear any overwhelming debts, often reducing debt by up to 80%. You will work closely with a bankruptcy trustee to agree on a reasonable and manageable monthly debt repayment. Your trustee will then work to negotiate with your creditors to strike a deal. A popular bankruptcy alternative, a consumer proposal is an affordable form of debt relief that also enables you to keep your assets. Filing a consumer proposal also generates a stay of proceedings, meaning that creditors or collection agencies are no longer legally able to contact you. At Spergel, 99% of our consumer proposals are accepted, and unlike other bankruptcy firms, you will be assigned your very own trustee to walk you through the entire process. It is a great debt relief solution for anyone who does not meet the criteria for a debt consolidation loan and wants debt clearance.

What is the difference between consumer proposal and debt consolidation?

In short, a debt consolidation loan enables you to simplify your debts and potentially reduce the overall interest rate although there is no guarantee. In short, you still retain your debt whether you can afford it or not. In contrast, a consumer proposal is a proposed monthly repayment amount that is agreed by you. It clears any remaining debt meaning that there is a substantial reduction in what you need to pay back. It also has the advantage of enabling you to keep your assets, and keep collection calls and creditors permanently at bay. There are many advantages of a consumer proposal over taking out a debt consolidation loan, which is key to remember when considering debt settlement vs debt consolidation. If you have various unsecured debts like credit card debt and payday loans and are struggling to repay them, you may need clearance of your debt through a consumer proposal. Check out our debt calculator to see what each form of debt relief may cost you.

If you want to understand what is the difference between consumer proposal and debt consolidation, you can learn more through our learning centre, or by contacting the experienced team at Spergel. Book a free consultation with one of our reputable Licensed Insolvency Trustees for advice on your unique financial circumstances, and how to begin a fresh financial future, free from debt.


Graeme Hamilton

Graeme Hamilton is a Chartered Insolvency and Restructuring Professional with over 10 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on bankruptcy and debt relief in the Ontario region. Prior to establishing his career in the insolvency industry, Graeme lived in Cambodia doing volunteer work with NGO's.

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