Credit Counselling vs Consumer Proposal

Is Credit Counselling or a Consumer Proposal The Better Debt Relief Solution?

As we navigate through life, managing finances can often become a challenging task. According to Statistics Canada, a significant 69.8% of Canadians are grappling with debt, with each household owing approximately $79,000. If you find yourself in such a predicament, it’s crucial to understand that bankruptcy isn’t your only way out. There are two primary debt-relief options you can consider: Credit Counselling and Consumer Proposal. This article aims to provide you with an in-depth understanding of Credit Counselling vs Consumer Proposal, and help you make an informed choice.

Understanding Credit Counselling

At its core, credit counselling is a process where you work closely with a credit counselling agency. The primary task of a credit counsellor is to assess your financial situation, determine the extent of your debt, and evaluate your capacity to repay it. Based on the evaluation, they create a debt management plan (DMP) that suits your financial situation. Additionally, they may guide you on budgeting, improving your credit score, and even assist you in procuring a debt consolidation loan from a financial institution. With credit counselling, you’re obligated to repay 100% of your debt within a specified timeframe.

Who Can Benefit From Credit Counselling?

Credit counselling is an ideal solution if you’re dealing with relatively smaller debt amounts, preferably under $20,000. However, it’s crucial to have a steady income source that allows you to gradually repay your debt and cover the credit counselling fees. If you’re capable of repaying your debt but require easing on interest rates, credit counselling can be a boon. This solution is also beneficial if you possess substantial equity in your property, making you ineligible for a second mortgage or debt consolidation loan, and you wish to avoid filing a consumer proposal.

Decoding Consumer Proposal

A consumer proposal is a legal procedure for debt repayment that lets you negotiate fresh terms with your creditors. To initiate this process, you need to consult a Licensed Insolvency Trustee (LIT). The LIT will scrutinize your debts and assist you in formulating a proposal that either aims to repay a part of your debt, seeks an extension on the repayment duration, or both. This proposal is then filed with Canada’s Office of the Superintendent of Bankruptcy, and your creditors vote to either accept or reject the proposal. The proposal is effective if it garners the approval of creditors holding 51% of your debt.

Who Can Benefit From a Consumer Proposal?

If you’re struggling with significant debt that doesn’t exceed $250,000, and your budget doesn’t permit you to repay 100% of the debt, a consumer proposal could be your best bet. This solution is often favored by individuals dealing with an overwhelming amount of debt, including student loans, tax debts, or multiple outstanding loans. A consumer proposal is a viable alternative to declaring bankruptcy. While you’re still required to repay your debt as per the proposal’s terms, you could witness reductions ranging from 70% to 80%.

Credit Counselling vs Consumer Proposal: A Detailed Comparison

Choosing between credit counselling and a consumer proposal can be challenging. Both options serve as alternatives to declaring bankruptcy, aid you in managing your debt, reduce interest, and help improve your credit score. To make an informed decision, it’s essential to understand the advantages and disadvantages of both.

Debt Repayment Obligations

Credit Counselling: With credit counselling, you’re obligated to repay the entirety of your debt. The interest may or may not be put on hold, depending on the terms agreed upon with your creditors.

Consumer Proposal: In a consumer proposal, you’re required to repay only a portion of your debt, which could be as low as 20% or 30% of the total amount. On filing the proposal, all interest charges are legally frozen.

Monthly Repayments

Credit Counselling: Your monthly repayments are determined by the amount you owe and the timeframe within which you need to repay the debt.

Consumer Proposal: If your proposal is approved, you can opt for a lump-sum payment or periodic instalments. These payments are contingent on your budget and the terms of your proposal.

Types of Debt That Can Be Addressed

Credit Counselling: Credit counselling aids in formulating a plan to repay all types of debt. Your debt management plan can include car payments, mortgage payments, student loans, credit card debts, and more. A debt consolidation loan will pay off all your debts at once, leaving you with just one monthly payment to make towards the loan.

Consumer Proposal: A consumer proposal only covers unsecured debt, so you cannot file to have your mortgage payments or car loan payments reduced. However, consumer proposals can include personal loans, lines of credit, credit cards, and even income tax.

Cost of Service

Credit Counselling: Credit counselling agencies charge for their services. This can be a one-time fee or an hourly rate. Typically, not-for-profit agencies charge less than for-profit agencies. You may have to pay upfront, monthly, or at specific intervals.

Consumer Proposal: There are federally regulated administration costs for a consumer proposal, but these are included in the proposal funds. You will never receive a separate bill for administrative fees because your payments cover these costs and the repayments to your creditors.

Credit Rating Impact

Credit Counselling: Consulting a credit counselling agency will not reflect on your credit report. However, if you enter into a debt management plan, an R7 rating will be placed on your credit rating for two years after completion.

Consumer Proposal: When you file a consumer proposal, you will have an R7 rating on your credit rating for three years after completion or six years from the date you filed the proposal.


Credit Counselling: The duration of credit counselling depends on the amount you owe, your income, and potential interest rate savings. It could take anywhere from one to five years to completely pay off your debts.

Consumer Proposal: The terms of a consumer proposal can vary, but the maximum duration to repay your debts is five years.

Agreements with Creditors

Credit Counselling: Credit counsellors may negotiate with creditors for reduced interest or repayment extensions, but there’s no legal authority to enforce them. Therefore, creditors must agree to all the terms. If they don’t, you will have to continue paying them under the pre-existing terms.

Consumer Proposal: As soon as you file a consumer proposal, interest is frozen and creditors must cease contact with you. If 51% of creditors holding your debt agree to the proposal, the terms go into effect. If the proposal is rejected, you will either have to make changes to the proposal and resubmit or consider other options.

Qualifications of Advisors

Credit Counselling: All credit counsellors should ideally be accredited through Credit Counselling Canada. However, not all agencies mandate their counsellors to be accredited. It’s crucial to verify the agency’s credibility and adherence to national standards.

Consumer Proposal: Licensed Insolvency Trustees must be licensed by the Canadian federal government. They work for the Office of the Superintendent of Bankruptcy, are federally regulated, and must follow the Code of Ethics for Trustees.

Choosing between Credit Counselling and a Consumer Proposal can be daunting, but understanding your financial situation and the unique benefits of each option can lead you to the right decision. If you’re struggling with debt and wish to avoid bankruptcy, considering credit counselling or a consumer proposal could be your first step towards financial freedom. Always remember, the key is to seek expert advice and make an informed decision based on your personal financial circumstances.

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