Debt Relief Experts
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.
Table of Contents
Consumer Proposal or Credit Counselling?
Credit counselling in Canada offers a consolidation program called a debt management plan (DMP). To qualify, you must be able to afford to repay your 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 totalling 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;
- 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;
- Are facing legal actions like a wage garnishment or significant collection calls;
- Want to avoid bankruptcy
Both debt solutions will affect your credit rating. Both appear on your credit report as an R7, and a note will show you are in a program to repay your debts. This note will stay for a maximum of six years. There is little difference between how a consumer proposal and debt management affects your credit score. Both are considered assisted debt repayment plans and will appear in your report.
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.
Both a DMP and a consumer proposal can deal with credit card debt, bank loans, lines of credit and overdue bill payments. Only a consumer proposal can provide relief for tax debts and student loan debt.
Exploring debt relief options?
Comparing Costs – An Example
Let’s look at an example situation of a debt management plan vs a consumer proposal.
Let’s say you owe $18,000 to your unsecured creditors. If a credit counsellor could get all of your creditors to agree to stop interest and allow you to repay this debt over five years, you could expect to pay approximately $330 monthly, including fees. This is a good solution if you can afford the $330 a month for 5 years. Unfortunately, many people I meet with cannot maintain their debt management payments because their living expenses are higher than they thought, and the debt management plan does not fit their budget. In comparison, with a consumer proposal, you may be able to make an offer to your creditors for as little as $105 a month for 60 months (including fees) to settle your debts. In almost all situations, a consumer proposal costs less than a debt management plan.
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 Government regulated |
10% + sign-up fee ($50-$100) |
| Creditor Protection | Binding on all creditors Legal protection from creditor actions Stops wage garnishments |
Voluntary participation Credit actions may continue No legal protection |
Reaching Out to a Licensed Insolvency Trustee
When facing financial difficulties, it’s crucial to make an informed decision about your debt relief options. A Licensed Insolvency Trustee (LIT) can provide expert guidance on whether credit counselling or a consumer proposal is the best choice for your situation. LITs are federally regulated professionals who can objectively assess your finances, explain the pros and cons of each option, and help you understand the long-term implications.
Don’t struggle alone – contact Hoyes Michalos today for a free consultation and take the first step towards regaining control of your financial future.
