Credit Counselling and Consumer Proposals: The Difference

December 13th, 2021
Credit Counselling and Consumer Proposals: The Difference

According to Statistics Canada, approximately only 30.2% of Canadians are living debt-free. As for the remaining 69.8%, each household owes about an average of $79,000 in debts. It’s no secret that debt can be very overwhelming, especially if the accumulated debt is so high that you can’t afford the repayments. The calls from creditors and collection agencies also add to the stress.

The good news is that here are two things can help: credit counselling and consumer proposals. Both are good ways to help someone who has accumulated debt, but there are still differences between the two.

In this article, we’ll discuss the difference between credit counselling and consumer proposals. Read on below to learn more.

More about Credit Counselling

Credit counselling primarily involves working with a credit counselling agency to find the best debt management solution for you. Usually, a credit counsellor will evaluate your finances to understand your debts and your ability to pay for them. Upon evaluation, your credit counsellor will create a debt management plan (DMP) to include a payment plan to pay for your debts in full and hopefully reduce some interest. Unfortunately a debt management program will still affect your credit rating and you will still be required to pay the debt in full. Furthermore, because it is a voluntary program, creditors do not have to participate, making it harder to get relief from all creditors.

The Benefit of Credit Counselling

Anyone who has smaller quantities of debt can benefit from credit counselling. However, you must have money to pay for your credit counsellor’s fees on top of the money you’ll need to pay for your debt.

Crediting counselling is your best option if you owe minimal debt and can afford the payments, but you just need help with structuring your payments and they may be able to lower your interest rates. Additionally, it may a good option if you don’t qualify for a debt consolidation loan or don’t want to use high interest loans or payday lenders to consolidate your debt.

More about Consumer Proposals

Unlike credit counselling, consumer proposals are legally binding agreements that can let you create new repayment terms with your creditors. First, you must meet with a Licensed Insolvency Trustee (LIT) to review your options and to get everything started. The LIT will evaluate your financial situation and assist you in creating a proposal to ask for an extension of the repayment period, pay a percentage of the debt you owe, or both.

After that, the LIT will file the proposal with the Office of the Superintendent of Bankruptcy, and your creditors will decide on whether or not they’ll accept your proposal. If those who hold the majority of your debt accept the terms, the proposal immediately comes into effect.

The Benefit of a Consumer Proposal

A consumer proposal will provide relief for borrowers who are struggling to repay their debts. A proposal immediately stops collections, stops interest, stops wage garnishments and will allow the debtor to repay the debt in part, or in full. A consumer proposal will help the borrower if they need more time to repay in full, or can afford only a certain amount, and a consumer proposal makes it possible to negotiate terms with their creditors.  Many people use consumer proposals when they are overwhelmed with various types of debt, such as student loans, tax loans, credit cards, payday loans and other types of credit. Another benefit is that it is legally binding on your creditors.

In essence, a consumer proposal is an excellent alternative to filing for bankruptcy. You still need to pay a portion, or the full amount of the debt according to the terms of the proposal, but you’ll be able to do it in a manageable way that fits within your budget.

The best way to determine what’s best for you is to compare both methods. Here is a brief comparison:

The Amount of Repayable Debt

You must pay back 100%  of your debt for credit counselling. Interest may or may not be reduced and frozen, but this is dependent on the terms you’ll negotiate with your creditors.

On the other hand, in most circumstances with a consumer proposal,  you only pay back a certain percentage of your debt. In some cases, the repayment amount can go below 20% of what was originally owed. As soon as the proposal is filed, all interest is stopped as required by law.

Monthly Payments

Monthly payments for credit counselling are based on the total amount of money owed and is usually completed in 5 years until you pay off the debt.

In a consumer proposal, payments are based on the negotiated settlement and is legally binding between all parties. You’re also able to make additional payments to complete the proposal ahead of time. Consumer proposal payments cannot exceed 5 years.

Agreements with Creditors

Credit counsellors can request reduced interest rates through debt management programs, but there’s no way to guarantee to stop the accumulation of interest with your creditors,  as participation in this program is voluntary. Because of this, creditors must agree to all the terms. You’ll need to continue paying for your debt under the pre-existing conditions in the event they refuse to accept the terms, or they may send you to collections or start legal proceedings against you.

In a consumer proposal, interest is frozen and creditors must cease contacting you once you have it filed with a Licensed Insolvency Trustee. If creditors reject your original proposal terms,  you’ll either need to negotiate and make changes to the proposal terms and or look into other options, like a bankruptcy.


Dealing with large amounts of debt is challenging because of the pressure of repayment plans and accumulated interest. The good thing is that you have options available to you. If you have a small and manageable debt load, a debt management program may be the solution you need. If you need immediate relief, need more time, want to stop interest, want to prevent or stop collections, and want to negotiate new terms that work for your current situation, a consumer proposal is likely the solution for you.

If you’re looking for help with debt and your ongoing payments or if you want to review your options and learn about consolidation loans, debt management programs, proposals, consumer proposals and bankruptcies, we at Paul J. Pickering and Associates Limited are here to help you. We have over 30 years of experience in helping our clients resolve their financial problems. Whether you’re starting to get overwhelmed and you don’t know how to handle your debts and minimum payments, contact our office today for your free initial consultation, and we’ll put together a plan that will work for you!