Debt Options Guide
Debt Consolidation Loan vs Consumer Proposal
Updated
A consolidation loan replaces several debts with one new loan — you still repay 100% of the balance plus interest, and you need good enough credit to qualify. A consumer proposal legally reduces what you owe and freezes interest, but it is recorded on your credit file. If you can afford to repay everything at a lower rate, consolidation is usually cheaper long term; if you can't, a proposal is usually the realistic option.
Compare the total cost
Add up every payment you would make under each option. A consolidation loan at a high rate over a long term can cost more than the original debts. Use the calculators to compare your payoff date and total interest.
The biggest risk with consolidation
Paying off credit cards with a loan frees up the cards again. If they get used, you end up with the loan and new card balances. FCAC recommends closing or lowering limits on paid-off cards.
Signs a proposal fits better
- You've been declined for a consolidation loan
- The only loans offered carry very high interest
- Your debts exceed what you could repay in about five years
- Creditors are already garnishing wages or threatening court action
Free tools
Related guides
- Debt Consolidation Loans in CanadaWhen a debt consolidation loan makes sense in Canada, how it compares with a debt management plan or consumer proposal, and the risks of using home equity.
- Consumer Proposal in Canada: How It WorksHow a consumer proposal works in Canada: who qualifies, the $250,000 limit, the 5-year maximum, the creditor vote, credit impact and what it costs.
- Credit Counselling and Debt Management PlansHow non-profit credit counselling and debt management plans work in Canada, what they cost, how they affect credit, and how they differ from a consumer proposal.
Sources
DebtDefender is an independent information site, not a Licensed Insolvency Trustee or law firm. This guide is general information, not advice for your situation. See our disclaimer.