Some debts won’t steal your peace of mind while some debts pile up so high that they start feeling like they will come crumbling on you. It’s tough to admit you’re drowning in debt—it can feel embarrassing, like everyone is going to judge you. Meanwhile, everyone has their financial struggles, so you’re not alone.

You have probably heard about consumer proposals and are wondering how it could help your situation. You’re probably more familiar with debt consolidation too. Both of these are ways to make the burden of your debt feel lighter. With a consumer proposal, you pay less than what you owe, up to a whooping 80% reduction. It’s a bit like asking for a discount because the full price is just too much.

Debt consolidation is similar because its main goal is also to make things more manageable. It combines all your different debts into one. If you have many debts, instead of paying them one by one or separately every month, you just make continuous payment towards one debt.

Consumer Proposal and Debt Consolidation Similarities 

Both Aim to Make Debt More Manageable

Both a consumer proposal and debt consolidation simplify your financial situation by making your debt more manageable. There’s nothing better than a debt situation you can conveniently manage, and that’s what these two help you achieve. A consumer proposal allows you to negotiate a portion of your debt to pay back, this will reduce the total amount you owe.

For example, if your total debt is  $200,000, rather than pay it all, you may be eligible for up to 80% decrease. If you got up to 80% reduction, it means you will have to pay just $40,000, and you can spread the payment for up to 5 years.

Debt consolidation, on the other hand, merges multiple debts into a single payment, usually with a lower interest rate. For example if you have 4 credit card debts, payday loans, etc. instead of paying these debts one by one, you will merge them together so your mind can somewhat be at rest. 

Both Can Stop Collection Calls

A consumer proposal and debt consolidation can give you relief from the constant pressure of dealing with creditors. Once a consumer proposal is filed, all your creditors are legally required to stop collection calls and wage garnishments. It will become a crime for any of your creditors to harass you or call you because of the debt. Similarly, consolidating your debts means that individual creditors receive their owed portions up front in the consolidation process, which typically leads to a cessation of calls and letters demanding payment.

Both Affect Your Credit

A consumer proposal and debt consolidation will have an impact on your credit score, but this is usually seen as a manageable downside if compared to ongoing financial struggle. A consumer proposal will stay on your credit report for up to six years after completion, whereas debt consolidation, depending on how it’s managed, might have a lesser impact if all consolidated debts are paid off promptly.

They Both Consolidate Your Debt 

A consumer proposal is also a way of consolidating your debt. All your unsecured debts qualify under a consumer proposal. Which means the debts can be merged together and reduced and you will only make one payment towards the debt just like debt consolidation.

The Differences

Impact on Credit Score

A consumer proposal is noted on your credit report as an R7 rating, which indicates that you made a settlement with your creditors, and it will remain on your credit report for up to three years after it is paid off or 6 years after filing. Debt consolidation on the other hand might have a neutral or even positive effect on your credit score if it helps you pay down debt more efficiently, depending on how the consolidation is reported by creditors.

Debt Reduction

In a consumer proposal, you can negotiate to pay back less than the total amount owed. You can get a reduction of up to 80%. This is a great advantage this debt relief option has over others. It doesn’t stop there. You will no longer accrue interests, that is, the interest payment stops immediately. Debt consolidation does not reduce the principal amount. You still owe the original sum that was borrowed.

Nature of the Solution

A consumer proposal is a formal, legal process intended for individuals who genuinely cannot repay their full debts. Debt consolidation is a financial service that can be arranged through a financial institution or a credit counseling service, focusing on simplifying debt management for easier repayment. It’s more about convenience and less about financial distress. It is suitable for those who can still manage to repay their debts in full but want to do so under better terms.

Which Should You Go For?

To determine which one you should go for depends on your financial situation and the goal you want to achieve. Sometimes, you may not even need any of the two, it could be another debt relief option that would work for you. This means you need to speak with a credit counsellor at EmpireOne Credit so we can access your financial situation and assist you accordingly.

You can call us at (416) 900-2324 to schedule a free consultation. One thing is certain, we will put a smile on your face and we will help you in getting rid of your debt so you can enjoy a debt-free life.

Being debt-free feels good!