If you’re feeling overwhelmed by debt, it’s completely natural to start by searching for debt consolidation loans. The idea of rolling multiple payments into one feels simpler and less stressful – and for some Canadians, it can be a helpful step. But here’s what most people don’t realize: debt consolidation often doesn’t reduce your debt – it just restructures it, and sometimes at a higher interest rate, costing you more in the long run. In some cases, exploring a debt consolidation alternative could prove far more effective.
At Spergel, we’ve helped over one hundred thousand Canadians explore their debt relief options, and many begin with the same question: “can I get a consolidation loan?” Let’s take a closer look at what that really means – and why debt consolidation might not be your best path forward.
What is debt consolidation, exactly?
Debt consolidation is when you take out a new loan to pay off several existing debts. You’re left with just one payment instead of many, ideally at a lower interest rate. But according to Equifax:
“Consolidation does not automatically erase your debt, but it does provide some borrowers with the tools they need to pay back what they owe more effectively.“
Consolidation loans often:
- Require a strong credit score
- Charge high interest rates
- Involve application or set-up fees
- Can be hard to qualify for if you’re already behind on payments
A smarter debt consolidation alternative: consumer proposals explained
A consumer proposal is a government-approved alternative to bankruptcy. It consolidates your debts into one monthly payment – without adding a new loan or any interest. And only Licensed Insolvency Trustees (like Spergel) can file one on your behalf. Here’s how a consumer proposal compares to a debt consolidation loan:
| Debt consolidation loan | Consumer proposal | |
|---|---|---|
| Monthly payment | 1 payment | 1 payment |
| Interest | ✅ Yes (often high) | ❌ None |
| Total debt repaid | 100% (plus interest) | Often just a portion – as low as 20% of the original amount of debt |
| New credit required? | ✅ Yes | ❌ No |
| Credit impact | Usually soft | Temporary dip, but allows faster rebuild |
| Legal protection | ❌ No | ✅ Stops collection calls, lawsuits, wage garnishments |
| Adds more debt? | ✅ Yes (new loan) | ❌ No – helps reduce and resolve debt |
Jennifer’s story: from debt consolidation to debt relief
Jennifer came to us with five maxed-out credit cards and a line of credit. She’d been looking for a debt consolidation loan to simplify her payments – but she was also feeling stuck. Her credit score had taken a hit, and she was barely keeping up with minimum payments.
After speaking with one of our Licensed Insolvency Trustees, Jennifer learned about a different option: a consumer proposal. Unlike a debt consolidation loan, a proposal could:
- Stop the interest immediately
- Reduce her total debt
- Give her legal protection from collections
- And help her become debt-free faster – without adding more credit
Today, Jennifer is paying one manageable amount each month – and she’s on track to be debt-free years sooner than she thought possible.
Does a debt consolidation alternative make more sense?
Let’s ask the question another way:
- Would you rather pay everything back – with interest? OR
- Pay back only part of your debt – with no interest and legal protection?
For many Canadians like Jennifer, a consumer proposal ends up being exactly what they were looking for – they just didn’t know it yet.
Who can benefit from a consumer proposal?
You might be a good fit for a consumer proposal if you:
- Owe more than $10,000 in unsecured debt (like credit cards, payday loans, or lines of credit)
- Are struggling to keep up with minimum payments
- Have missed payments or are being contacted by collection agencies
- Want to avoid bankruptcy and keep your assets
And the best part? There’s no obligation to commit – your first consultation with one of our expert Licensed Insolvency Trustees at Spergel is free.
Debt consolidation alternative: FAQs
Here are some of the most common questions we receive about debt consolidation alternatives:
What is a better option than debt consolidation?
A better option than debt consolidation for many Canadians is a consumer proposal. Unlike a debt consolidation loan – which still requires full repayment with interest – a consumer proposal legally allows you to repay only a portion of your debt, with no added interest, and protects you from collections or wage garnishment. It’s a government-regulated solution, administered by a Licensed Insolvency Trustee, and often provides more meaningful, lasting debt relief.
How can I get out of debt without consolidation?
You can get out of debt without consolidation by exploring other solutions like a consumer proposal, credit counselling, or in some cases, bankruptcy. A consumer proposal is one of the most effective options – it reduces the amount you owe, stops interest, and gives you legal protection from creditors, all without needing to take out a new loan. Speaking with a Licensed Insolvency Trustee is the best first step to find the right option for your situation.
What are alternatives to debt settlement?
Alternatives to debt settlement include a consumer proposal, credit counselling, and bankruptcy. A consumer proposal is often the most effective alternative – it’s legally binding, reduces your total debt, stops interest, and offers protection from creditors, unlike informal debt settlement. Credit counselling may help if your debt is manageable and you just need help lowering interest rates. For more serious financial situations, bankruptcy may be the right path to a fresh start. A Licensed Insolvency Trustee can help you understand which option is best for your needs.
Does debt consolidation ruin your credit score?
Debt consolidation doesn’t necessarily ruin your credit score, but it can have a temporary impact depending on the method you use. If you take out a debt consolidation loan and make consistent payments, your credit may actually improve over time. However, if you’re late or miss payments, it can hurt your score. Other forms of consolidation, like a consumer proposal, will show on your credit report and may lower your score initially – but they also stop interest, reduce your debt, and can help you rebuild your credit faster once completed.
Why trust Spergel?
At Spergel, we’ve been helping Canadians break free from debt for over 35 years. We’re proudly Canadian, and our Licensed Insolvency Trustees are regulated by the federal government – meaning you’re always in safe hands. We believe in real solutions, not pressure tactics. If a consumer proposal isn’t right for you, we’ll help you explore other options. Ultimately, our goal is simple: we don’t put you deeper in debt – we help you break free from it.
Take the next step
Not sure whether debt consolidation or a consumer proposal is right for you? Considering a debt consolidation alternative? Try our free Debt Repayment Calculator to see what your monthly payments could look like with a consumer proposal – or book a free, no-obligation consultation with a Licensed Insolvency Trustee today.