Managing debt can be a challenging experience for many Canadians. Whether you are dealing with credit card balances, personal loans, or other types of debt, the interest rates and fees can quickly add up, making it difficult to keep up with payments. One popular solution for managing multiple debts is debt consolidation. In this blog, we will explore what debt consolidation is and why a consumer proposal might be a better solution for some Canadians.

What is Debt Consolidation?

Debt consolidation is a financial strategy that involves taking out a new loan to pay off multiple existing debts. This can simplify the debt repayment process by consolidating multiple payments into one monthly payment. Debt consolidation can also potentially lower the interest rate on your debt, reducing the total amount of interest you pay over time.

There are several options for debt consolidation in Canada, including:

  • Home Equity Loans: These loans are secured against the equity in your home, which is the difference between the value of your home and the amount you owe on your mortgage. Home equity loans typically have lower interest rates than other types of loans because they are secured.
  • Personal Loans: Personal loans are unsecured loans that can be used to pay off existing debts. They typically have higher interest rates than home equity loans because they are not secured.
  • Balance Transfer Credit Cards: Some credit card companies offer balance transfer credit cards with a low or 0% introductory interest rate. You can transfer the balances of your existing credit cards to the new card and pay off the balance during the introductory period.

While debt consolidation can be a useful tool for managing debt, it may not be the best solution for everyone. In some cases, a consumer proposal may be a better option.

Why a Consumer Proposal Might be Better for You

A consumer proposal is a legal process that allows you to negotiate a settlement with your creditors. A licensed insolvency trustee (LIT) will work with you to create a proposal that outlines a payment plan based on your income and expenses. If your creditors accept the proposal, you will make payments to the LIT, who will distribute the funds to your creditors. The proposal can include unsecured debts such as credit cards, personal loans, and tax debts.

A consumer proposal can be a better option than debt consolidation for several reasons:

  • Reduced Debt: With a consumer proposal, you may be able to reduce the total amount of debt you owe. Creditors are often willing to accept a reduced payment rather than risk getting nothing, or a lesser amount, if you declare bankruptcy.
  • Lower Monthly Payments: The payment plan in a consumer proposal is based on your income and expenses, which means you may be able to reduce your monthly payments compared to debt consolidation.
  • Protection from Creditors: Once a consumer proposal is filed, creditors are legally prohibited from contacting you or taking legal action to collect the debt. This can provide much-needed relief from collection calls and letters.
  • No Interest: Unlike debt consolidation, a consumer proposal does not accrue interest. The payment plan is based on a fixed amount, which means you know exactly how much you need to pay each month.


If you are struggling with debt, debt consolidation may be a useful tool for managing your finances. However, it is important to consider all your options before making a decision. A consumer proposal may be a better solution for some Canadians, offering reduced debt, lower monthly payments, and protection from creditors. If you are considering a consumer proposal or debt consolidation, it is recommended that you speak with a licensed insolvency trustee who can provide guidance and advice based on your individual circumstances.