What’s the Difference Between Credit Counselling and Debt Consolidation?

Understanding the Difference Between Credit Counselling and Debt Consolidation

Dealing with debt can often feel overwhelming, and finding the right solution to manage it can be equally challenging. Two potential solutions that may come to mind are credit counselling and debt consolidation. While both can help manage your debt, they are quite different in nature. This article aims to shed light on the differences between these two debt management strategies.

Defining Debt Consolidation

Debt consolidation is essentially the process of merging multiple debts into a single, more manageable payment. This is typically achieved through a loan or settlement.


Banks or other financial institutions are often the source of traditional debt consolidation loans. However, obtaining these loans often requires strong credit scores and collateral.

Understanding the specifics of your loan, such as the repayment terms and interest rates, is crucial. Especially since these factors can vary greatly and may be affected by your credit history.

For a more comprehensive understanding of debt consolidation options in Canada, visit this link.

Delving into Credit Counselling

Unlike debt consolidation, credit counselling doesn’t involve taking out a new loan. Instead, it involves working with a credit counsellor who helps develop a repayment plan. This plan allows you to pay off your debts in full, potentially with a reprieve on the interest charged by banks.


Credit counselling services are available through both for-profit and non-profit credit counsellors.

It’s important to note that all credit counsellors charge fees for their services, regardless of whether their organization is non-profit or not. For more information on choosing a credit counsellor, visit this link.

Types of Debts That Can Be Consolidated

Both debt consolidation loans and credit counselling plans can be used to manage a variety of general consumer debts. This includes debts such as credit cards, payday loans, overdrafts and more.

However, it’s important to note that government debts can only be managed through a specialized debt settlement tool known as a Consumer Proposal. This tool allows for the consolidation and write-off of consumer debts, tax debt, student loans and more.

Assessing the Cost

While both consolidation loans and credit counselling programs require full repayment of your debt, they differ in terms of the interest and fees charged.

Consolidation Loan:

If you qualify for a consolidation loan with a reasonable interest rate, it may be more cost-effective than repaying each debt separately. There’s typically no cost to apply for a consolidation loan.

Credit Counselling:

Credit counselling programs often help negotiate arrangements with creditors to halt future interest charges. However, you’ll still have to repay 100% of your debt, plus any fees charged by the counsellor.

Impact on Your Credit History

Consolidation Loan:

A consolidation loan may actually improve your credit rating if you make all your payments on time. However, qualifying for such a loan can be challenging if your credit rating is less than ideal.

Credit Counselling:

Credit counselling will appear on your credit history for 2-3 years after your settlement is completed, or 6 years from when you first defaulted on your accounts, whichever comes first. This is similar to the impact of a Consumer Proposal.

Remember, not paying your debts in full as per the agreed terms will negatively affect your credit history. However, a short-term hit to your credit might be worthwhile if it leads to long-term financial stability.

Exploring Other Consolidation Options

Bank consolidation loans and credit counselling settlements may not be the right solution for everyone. You should consider other factors such as:


  • Your ability to repay 100% of your debt within 2-5 years.
  • The possibility of legal action by your creditors.
  • The presence of government debts like taxes or student loans.
  • Your comfort level with working with a lender or an agency funded by lenders.


A Consumer Proposal can be an effective alternative to traditional debt consolidation loans and credit counselling programs. It can consolidate almost all debts (including government debt), reduce the amount of debt you have to repay, stop all future interest, and legally bind your creditors.

If you’re struggling with debt, consider scheduling a consultation with a debt professional to discuss your options and develop a plan to become debt-free. Book your free debt consultation now.

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