When looking for a solution to a financial
problem or accumulated debt, you will find that there are many services
available that offer different things. Banks and finance companies
traditionally offer debt consolidation loans, while trustees in bankruptcy deal
with debt through bankruptcies and consumer proposals.
Debt consolidations involve consolidating debt
into a single payment and debt consolidation loans have very similar
characteristics to consumer proposals. A consumer proposal involves a proposal being made to your creditors wherein you
agree to repay a portion or all of your debt through a single, fixed monthly
payment.
A consumer proposal is much like a debt
consolidation loan because:
·
You begin owing a fixed sum of money.
·
You begin making a single monthly payment.
·
You can pay it off at any time.
Some of the benefits that are offered through a
consumer proposal that are not offered by debt consolidation loans are that in
many cases a consumer proposal will reduce the
overall debt owing, will stop collection action, will freeze the interest
accruing on debts, and more.
One of the drawbacks of filing a consumer
proposal vs. taking out a consolidation loan is that it will impact your credit
and your relationship with your creditors. Because creditors are not being paid
according to the original terms of your agreements with them when accepting
less than what they are owed and/or being repaid over a longer period of time,
they will not likely do business with you in the future. In addition, the
consumer proposal will be reported on your credit report for 3 years from the
date it is paid in full.
Now, one must weigh the impacts on credit
against getting out of debt. If you owe so little debt that you could pay off
all of your creditors in 3 to 4 years and have good enough credit to get a debt
consolidation loan, then a debt consolidation loan may be the right answer.
However, a consumer proposal may be the best
answer if:
·
Your credit is already damaged to the point where you
cannot get a debt consolidation loan, or;
·
You have so much debt that you cannot consolidate it
all, or;
·
You have so much debt you just can’t see a way to pay
it off in a reasonable amount of time.
When it comes to making a choice with respect
to how to deal with your debt it is important to recognize that each person's
financial situation is different. A debt consolidation loan or consumer proposal may not be the right answer for you
at all. The best thing that you can do is consult a financial
counsellor/consultant to perform an unbiased review of your finances, give you
some practical advice, and provide the resources and representation to see your
plan through.
For more information about consumer proposals
and debt consolidation loans or if you need a debt consolidation please contact
DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.
