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When you’re going through debt, it can feel like you against the world. But it’s important to remember you’re not alone. Our Licenced Insolvency Trustees are here to help you find your way back to financial stability.
Finding the right path to regain control of your finances is the first step – it’s important to choose a debt relief solution that aligns best with your current situation.
Today, we’ll explore two key debt relief options available in Canada: credit counseling and consumer proposals. Both can provide relief, but they cater to different types of financial situations. Let’s dive into each option so you can leave with a clearer understanding of which might be right for you.
Key Points
- What is credit counseling?
- What is a consumer proposal?
- Consumer Proposals vs Credit Counselling – What’s the difference?
What is credit counseling?
Credit counseling involves working with professional credit counselors through credit counseling agencies. These experts help you develop a debt management plan that typically involves repaying 100% of your unsecured debts over time—this includes credit cards, lines of credit, and payday loans. If your total debt is ideally under $10,000, credit counseling might be the right path for you.
This process can also offer advice on budgeting and securing a debt consolidation loan. It’s a good fit if you’re able to handle a monthly payment and primarily need assistance with lowering interest rates or managing your finances more effectively. However, the success of this plan can depend on your ability to negotiate with creditors, and it might not stop legal action or collection calls.
What is a consumer proposal?
A consumer proposal is a more formal debt relief option, offering you a viable alternative to bankruptcy. Facilitated by a Licensed Insolvency Trustee (LIT), this legal process is backed by the federal government and provides significant legal protection against creditors. It’s suitable for larger debts—up to $250,000 (excluding secured debts like mortgages) and allows you to repay only a portion of your debts, typically between 20% to 30%.
Once filed, a consumer proposal freezes all interest and stops all collection calls and legal actions. It’s particularly beneficial if your debts, including tax debts and excluding student loans, overwhelm your repayment capability. This option does have a more prolonged impact on your credit report, but it offers a legally binding agreement that gives you a fresh start without continuing harassment from a collection agency.
The key differences to consider
Here’s a rundown of the key differences you should think about when considering consumer proposals and credit counseling as debt solutions:
Debt Repayment
Credit counseling requires full repayment over time, while a consumer proposal often significantly reduces the total repayment amount, making your debt payments far more manageable.
Interest Rates
While credit counseling may lower interest rates, a consumer proposal legally freezes all interest, providing a predictable monthly payment schedule. This makes it a great choice if you’re struggling with high-interest debts.
Types of Debt Covered
Credit counseling can address a variety of unsecured debts and even some secured debts under certain conditions, whereas consumer proposals are strictly for unsecured debts.
Legal Protection
Only consumer proposals offer full legal protection from creditors, making it a stronger option if you’re facing collection actions or other legal action from a collection agency.
Moving towards a debt-free future with Harris & Partners
Choosing between credit counseling and a consumer proposal depends largely on your financial situation — specifically, the amount and types of debt you have, as well as your capability to meet monthly payment obligations. Both forms of debt relief provide structured plans to help you move toward financial stability.
If your debts are relatively small and you feel you could manage them with some expert advice on budgeting, credit counseling might be the right fit for you. On the other hand, if you’re up against larger amounts of debt and the idea of reducing what you owe sounds like the relief you need, a consumer proposal could be the solution.
Remember, you don’t have to sort through these options alone. Our friendly team of Licensed Insolvency Trustees has years of experience helping thousands of Canadians navigate their way out of debt. We’re here to walk you through the process of a consumer proposal, ensuring you understand every step and feel confident in your financial decisions. Reach out to us today, and let’s start working together towards a brighter financial future.
