If you're struggling with debt in Canada, you might be wondering what your options are for getting your finances back on track. Debt consolidation and consumer proposals are two potential options that can help you pay off your debts and regain control of your finances. Here's what you need to know about these two options to help you decide which one might be right for you.
Debt consolidation is a way to pay off your debts by taking out a new loan to pay off your existing debts. This can help you simplify your payments and lower your overall interest costs by getting a lower interest rate on your new loan.
Generally, a debt consolidation loan is in the form of a new mortgage. The new mortgage is for a higher amount that replaces your current mortgage and gives you the money to pay off all your debts. This new mortgage amount can be as much as 80% of the value of your home.
A debt consolidation loan could also be an unsecured loan if you do not own your home but the new interest rate will not be as attractive and you won’t be able to borrow as much.
A consumer proposal is a legal process that allows you to make a formal offer to your creditors to pay off a portion of your debts. You work with a licensed insolvency trustee to create a plan to pay off your debts, which must be approved by your creditors.
How They Work
Debt consolidation involves getting a new loan to pay off your existing debts. You will still have to pay back the new loan, but the interest rate and monthly payments may be lower.
A consumer proposal is a formal offer made to your creditors to pay off a portion of your debts. You work with a licensed insolvency trustee to create a plan to pay off your debts, which must be approved by your creditors.
Pros and Cons
Debt consolidation can help you simplify your payments and lower your overall interest costs. However, it may not be suitable for everyone, and you may end up paying more in the long run if you don’t have a solid plan to pay off your debts.
A consumer proposal can help you pay off a portion of your debts, but it will also have a negative impact on your credit score and your ability to get a mortgage for the next 6-7 years. It may also require you to give up some of your assets, like a second car or vacation home.
To lenders, consumer proposals are viewed the same as bankruptcy, so filing for bankruptcy may be a better option if you’re considering a consumer proposal and you have a large amount of debt and very few assets.
Which One is Right for You?
Debt consolidation and consumer proposals are both options for managing debt, but they work in different ways and have different pros and cons. It’s important to consider your individual financial situation and goals when deciding which option is right for you. You may want to consult with a financial advisor or licensed insolvency trustee to help you weigh your options and make the best decision.