Guide · Calgary & Alberta
Consumer Proposal vs Debt Consolidation Loan: Which One Fits?
A debt consolidation loan replaces several debts with one new loan you repay in full, and works when your income can carry the total. A consumer proposal is a legal deal, run by a Licensed Insolvency Trustee, to repay creditors part of what you owe over up to five years. It is for debt you realistically cannot repay in full.
Side-by-side comparison
| Debt consolidation loan | Consumer proposal | |
|---|---|---|
| What it is | A new loan that pays off your existing debts | A formal, legally binding offer to your creditors under federal insolvency law |
| Who arranges it | A bank, credit union or other lender | A Licensed Insolvency Trustee (OSB) |
| How much you repay | 100% of the debt, plus interest | A negotiated portion, and/or more time to pay |
| Maximum length | Set by the loan term | Five years (OSB) |
| Debt limit | Whatever a lender will approve | Total debts up to $250,000, not counting a mortgage on your principal residence (OSB) |
| Eligibility | Needs adequate credit and income | For people who cannot pay debts as they come due |
| Credit impact | A new account; can help over time with on-time payments | Serious: the OSB notes filing a proposal is assigned the lowest possible credit score |
When a consolidation loan makes sense
You have steady income, several balances at credit card rates, and the new loan's rate is lower than your current blended rate. You also need a plan to keep the cards from filling back up, or you end up with the loan and the balances. See our debt consolidation loans page for the options.
When a consumer proposal may be the better tool
If the total you owe is more than your income can realistically pay off, a new loan only rearranges the problem. A consumer proposal can reduce what you repay and stops most collection action once it is filed. It is a serious step with a serious credit cost, so talk to a Licensed Insolvency Trustee first; the first consultation is typically free.
A middle option: non-profit credit counselling
A non-profit credit counselling agency can set up a debt management plan with your creditors, often with reduced interest, without a new loan or a formal insolvency. The Financial Consumer Agency of Canada explains each option.
Frequently asked questions
Is a consumer proposal better than a debt consolidation loan?
Neither is better in general. A consolidation loan suits people who can repay everything and want a lower rate. A consumer proposal suits people who cannot repay in full; it costs more in credit impact but can cut what you owe.
What is the debt limit for a consumer proposal?
Total debts of up to $250,000, not counting a mortgage on your principal residence, according to the Office of the Superintendent of Bankruptcy.
How long does a consumer proposal last?
The term cannot exceed five years.
Can I get a debt consolidation loan with bad credit?
Sometimes, from alternative lenders at higher rates, or with security or a co-signer. If the rate isn't lower than what you pay now, consolidation may not help.
Sources
- Office of the Superintendent of Bankruptcy — You owe money: consumer proposals
- Financial Consumer Agency of Canada
Calgary Lending is a free referral service. We are not a lender or mortgage brokerage, we do not make credit decisions or quote rates, and approval is never guaranteed. We may receive a referral fee from the lender or broker we connect you with; it is paid by them, not you. Information on this page is general and is not financial advice.