If you are looking to get out of debt with the help of a professional, you may be considering the pros and cons of credit counselling vs a consumer proposal.
Credit counselling offers a consolidation program called a debt management plan (DMP). To qualify, you must be able to afford to repay you debts in full within five years. A DMP is a voluntary repayment program arranged through a not-for-profit credit counsellor.
Credit counselling is generally best for individuals who:
- Carry small debts totaling less than $10,000 or up to $20,000 if they have enough income to support repayment plus additional up to 10% – 15% credit counselling fees; or
- Have too much equity in their home to be eligible to file a consumer proposal but cannot qualify for a second mortgage or debt consolidation loan; and
- Can afford to repay 100% of their debts but need a break on interest costs;
A consumer proposal is a government regulated debt settlement program filed with a Licensed Insolvency Trustee. You make an offer to repay less than you owe and can spread those payments over five years.
Consumer proposals are best for those who:
- Cannot afford to repay 100% of their debts;
- Want to repay a portion of their debts based on what their budget will support;
- Have large unsecured debt balances, tax debts, student debt, multiple payday loans;
- Want to avoid bankruptcy
Both programs will affect your credit. Both appear as an R7 and note will show you are in a program to repay your debts.
Both a consumer proposal and credit counselling begin with a free initial debt assessment. The primary difference is that a credit counsellor will review your budget to determine if you can repay 100% of your debts, the primary requirement of a debt management plan. A licensed insolvency trustee will review your finances to determine how much you can afford to repay and what you may be able to offer your creditors, and will review all of your options.
Regardless of which you choose, be sure to work with a qualified, experienced, reputable advisor. Consumer proposals can only be filed with a Licensed Insolvency Trustee. Since they are government programs, you should always talk to a LIT about how they work. If considering credit counselling, be sure to contact a not-for-profit credit counselling agency. It may even be wise to seek two opinions to ensure you are making the right choice.
Below is a comparison of the features of both credit counselling and consumer proposal options.
Consumer Proposal vs Credit Counselling – Pros & Cons Comparison
|Features||Consumer Proposal||Credit Counselling|
|Service provider||Licensed Insolvency Trustee||Credit Counsellor|
|Program||Consumer Proposal||Debt Management Plan|
|Repayment Amount||Varies, 35% not uncommon||100%|
|Interest charges||0%||Sometimes waived or reduced|
|Fees/Costs||Included in payment
|10% + sign-up fee ($50-$100)|
|Creditor Protection||Binding on all creditors
Legal Protection from creditor actions
Stops wage garnishments
Credit actions may continue
No legal protection
If you would like help choosing between a consumer proposal and credit counselling, contact us today for a free, no-obligation consultation.