Consumer Proposal vs Debt Consolidation, which one is better for me?
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- 1 Consumer Proposal vs Debt Consolidation, which one is better for me?
- 1.1 What You Need to Know About Consumer Proposal vs Debt Consolidation
- 1.2 What is Debt Consolidation?
- 1.3 How many payments I will have after I consolidate my debts?
- 1.4 What is a Consumer Proposal?
- 1.5 What creditors should I include in the Consumer Proposal?
- 1.6 Similarities Between Consumer Proposal vs Debt Consolidation
- 1.7 Differences Between Consumer Proposal vs Debt Consolidation
- 1.8 Choosing Between Consumer Proposal vs Debt Consolidation
- 1.9 Debt Settlement Resources & Articles
- 1.10 What Is The Canadian Emergency Wage Subsidy CEWS
- 1.11 Will I Lose My Home or Car if I File for Bankruptcy?
- 1.12 Can Bankruptcy or Consumer Proposal Eliminate Tax Debt?
What You Need to Know About Consumer Proposal vs Debt Consolidation
For people who are having difficulty dealing with debt, two options that are often considered are consumer proposals and debt consolidation. Both of these processes are designed to help people get control of their debts and improve their financial situation. However, each financial situation is different. That’s why it’s important to compare consumer proposal vs debt consolidation to figure out which one may be right for you.
To do this, you’ll need to understand exactly what each process actually is, then use this information to figure out how these options apply to your situation.
What is Debt Consolidation?
Debt consolidation is the process of combining several loans into a single loan. This is usually done by taking out a new loan (often called a “debt consolidation loan”), but it can sometimes often be done by using an existing credit account to pay off other debts (such as using a line of credit to pay off credit card debt, for example).
One of the goals of debt consolidation is to make the process of paying debt easier. In some cases, people might owe various different debts to various different creditors at the same time. These debts may have different due dates and you’ll probably need to pay different amounts to each creditor. This process can be complicated and often people miss payments or pay bills incorrectly if they’re overwhelmed by a lot of debt. That can lead to large penalties and interest being charged. It will also hurt your credit rating.
How many payments I will have after I consolidate my debts?
When you consolidate your debts, you only have one monthly payment, which makes it simple and straightforward to remember.
In addition, most debt consolidation processes aim to reduce the amount of interest that you pay on your debt. This is possible if the loan you’re using to consolidate has a lower interest rate than the overall interest rates of the debt you’re paying off.
For example, if you have three credit cards that charge 20%, 22%, and 26% interest annually, and you use a line of credit with a 15% interest rate to pay off these debts, you’ll pay less interest over the life of the loan. This can reduce your monthly payment and help you pay off your debts more quickly, which will save you money.
You can use a debt consolidation company or debt management plan to consolidate your debts, you can take out a specific debt consolidation loan, or you can use another form of a credit to consolidate your debts on your own. How you choose to proceed will depend on your specific situation.
What is a Consumer Proposal?
A consumer proposal is a legal process that can only be administered by a Licensed Insolvency Trustee. This is an individual who has received training and has been licensed by the Office of the Superintendent of Bankruptcy. Trustees provide people with information on the debt relief options that are available to them and administer insolvency processes such as bankruptcies and consumer proposal.
With a consumer proposal, the trustee reviews your financial situation and determines what a fair offer to your creditors would be. In the majority of cases, this offer is for a portion of the outstanding debt rather than the full amount. The offer is then sent to all of your unsecured creditors. An unsecured creditor is one who is owed a debt that is not tied to an asset. For example, credit card debts, lines of credit, tax debt, and personal loans would all be examples of unsecured debts.
Once the proposal is sent to your creditors, they will each vote on whether they wish to accept it. If the creditors that are owed the majority of the debt choose to accept the proposal, then all are bound by the terms of the proposal. For example, if you owe $40,000 in debt and any creditor or collection of creditors that are owed at least $20,000 chooses to accept the proposal, then it becomes binding for all of your unsecured creditors.
What creditors should I include in the Consumer Proposal?
You must include all of your unsecured creditors in a consumer proposal; none can be left out.
If your proposal is accepted, then you become responsible for making monthly payments to the trustee who will distribute these payments to your creditors. A consumer proposal can last up to 60 months (five years) but the length of your proposal will depend on your financial situation. You can pay off your proposal more quickly if you’d like. There is no penalty for doing so.
Once you have completed all the payments as outlined in the terms of the proposal, the remaining outstanding debt will be eliminated. A consumer proposal can allow you to repay only some of what you owe, rather than the full amount.
Similarities Between Consumer Proposal vs Debt Consolidation
When looking at consumer proposal vs debt consolidation, it becomes clear that there are many differences between these two processes as well as many similarities. One of the main similarities is that both processes simplify the debt repayment process by allowing you to make a single payment each month, rather than having to make numerous payments to several different lenders on many different days. This makes it much easier to handle debt repayment and it reduces stress and the likelihood of missing a bill.
Both processes are also designed to help you save money. A debt consolidation loan aims to reduce the overall amount of interest you will pay on your debts. A consumer proposal allows to pay a portion of your debt and have the remainder eliminated once the proposal is complete.
However, while there are similarities between these processes, there are also important differences to understand when looking at consumer proposal vs debt consolidation. These differences are perhaps more important than the similarities, especially when it comes to deciding which process is right for you.
Differences Between Consumer Proposal vs Debt Consolidation
There are many differences to pay attention to when you’re looking at consumer proposal vs debt consolidation.
One of the biggest differences is that, while a debt consolidation loan can save you money in interest, it doesn’t reduce the overall amount that you owe. You will still be expected to pay your debt in full and your creditors can take legal action against you if you don’t make your payments.
A consumer proposal allows you to pay only a portion of your debt. If you make all the required payments, your remaining debt will be eliminated when the proposal is completed.
In addition, once a consumer proposal is accepted, interest stops being charged on your debts. Consumer proposal payments are interest-free, regardless of the length of your proposal, up to a maximum of 60 months/five years.
A consumer proposal provides legal protection from creditors. Once you file, your creditors cannot take collection action against you and any actions that are in place must stop. In fact, your creditors are not able to contact you about your debts at all. All communication must go through the trustee.
When you file for a consumer proposal, this fact will be noted on your credit report. That can make it more difficult for you to get loans in the future. This note remains for three years after your proposal has been completed. A debt consolidation loan is not specifically noted on your credit report and if you continue to make all of your payments on time, your credit rating may not be affected. However, if you borrow more than you can realistically handle or miss payments, this will harm your credit score.
Choosing Between Consumer Proposal vs Debt Consolidation
If you are looking at consumer proposal vs debt consolidation and are wondering if either of these options is right for you, it’s important to remember that each financial situation is unique. There is no single debt relief option that is perfect for everyone.
If you owe significant interest on your debts, and if that is making it difficult for you to keep up with payments, then a debt consolidation loan may work for you. However, it’s important to note that it could be difficult to get a consolidation loan that has a low enough interest rate for it to save you a lot of money. Depending on your financial situation and your credit rating, you may find it tough to find a lender who will give you the sort of loan you are looking for.
If you are unsure of what to do to resolve your debt situation, speaking with a Licensed Insolvency Trustee can help. While a trustee can administrate a consumer proposal, this isn’t the only service they provide. Most trustees will do a free consultation where they will review your financial situation and provide you with details on the available options. Trustees are required to give information on all debt-relief options, not just the ones with which they can provide assistance.
The choice between consumer proposal vs debt consolidation, or any other debt relief option, is always up to you. By understanding the processes and determining how each process could affect your unique financial situation, you can find the option that is right for you.
Debt Settlement Resources & Articles
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