Consumer Proposal vs Debt Consolidation

What is a Consumer Proposal?

A consumer proposal allows you to pay off your unsecured debts at an affordable monthly rate. It’s helpful since you’ll often only have to pay off a portion of what you owe.

A few key benefits of a consumer proposal

  • A consumer proposal often reduces overall debt owing.
  • You can repay with out having to declare bankruptcy
  • The debt is often repaid with zero interest.
  • Stops collection action.
  • A consumer proposal stops all wage garnishments
  • Your assets remain in your possession

What is Debt Consolidation (Loan)

A debt consolidation loan is basically a big loan to pay off your other debts. Your goal should be looking for a low interest rate that pays off all your debt. Most people turn down a debt consolidation loan when it’s offered at the bank. It’s called a line of credit. Keep this in mind in the future – credit is only freely offered when you don’t need it.

how a consumer proposal affects you

The main disadvantage of filing a consumer proposal vs taking out a consolidation loan is that it will impact your credit rating thus affect your creditors ability to lend to you.

This might seem like a minor point right now, if you are drowning in debt.

However because the creditors are not being paid according to the original terms and conditions of the agreement, they may choose not do business with you in the future. In addition, the consumer proposal will be reported on your credit report as an R7 for 3 years from the date it is paid in full.

You must decide if the impact on your credit is worth getting out of debt and agreeing to a more affordable repayment plan with your creditors.

If you can afford the payments & have a good enough credit rating to qualify then a debt consolidation loan could be a suitable fit for you.

Which one is better?

A consumer proposal may be a better option than the debt consolidation loan if you are in any of the following situations:

  • Your credit is already severely damaged.
  • You cannot afford the new proposed payment with a consolidation loan.
  • Your business recently experienced hard times and creditors are trying to collect from you.
  • Your wages are being garnished.
  • You cannot consolidate all your debt.
  • You are struggling to pay your bills on time.
  • Your creditors are calling you and debts in collection.
  • You have had creditor liens placed on your home.
  • Your payments behind on your mortgage, car, credit card, line of credit payments.
  • You owe a lot of money to Revenue Canada – CRA – and they are aggressively trying to collect from you.

You’ll need to be honest about how severe your situation is.

Please remember that the credit industry is designed to work for lenders and most of the information out there favors you paying back as much money as possible.

But consumers have more options and rights than they know. The difference between a consumer paying back $50,000 and $25,000 is a small blip on a bank’s budget. But it can have lasting impact to your financial future.

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