--- title: "Debt consolidation loans vs. consumer proposals: What’s the difference?" date: 2018-10-23T10:29:28-04:00 author: Freida M. Richer canonical_url: "https://grantthorntonlimited.ca/en/debt-help-resources/articles/consolidation-loan-vs-consumer-proposal-whats-the-difference" section: Articles --- [ Back to the hub ](https://grantthorntonlimited.ca/en/debt-help-resources/articles) # Debt consolidation loans vs. consumer proposals: What’s the difference? Freida M. Richer CIRP, Licensed Insolvency Trustee ![Person holding a pen drawing a large dollar sign on a piece of paper](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/Web-image-square/_articleHero/6519/whats-the-difference-between-a-consolidation-loan-and-a-consumer-proposal.jpg.webp) Freida M. Richer CIRP, Licensed Insolvency Trustee If you’re juggling monthly payments to multiple creditors, the idea of making a single payment towards the entire amount owed probably sounds like a huge relief. Debt consolidation and consumer proposals are both options to consolidate most debt payments. Here’s how each works! ## How do debt consolidation loans work? A debt consolidation loan is a type of personal loan that goes towards paying off your outstanding debts in full. As a result of this, you would owe only one lender, leaving you with the simplicity of only one monthly payment. Typically granted by banks or private lenders, this type of loan allows you to ‘combine’ credit card debt, lines of credit, overdue bills, and more. Though this option is convenient, there are considerations: - Your credit score may cause your interest rate may be high. - Your monthly payment may not be affordable. - You may be charged set up, service, and/or late payment fees. - You can accumulate more debt during repayment. - You might not qualify. If you’re considering a consolidation loan, you must meet the requirements of the lender. They generally are: - a good credit score - a moderate amount of debt - a consistent income - assets as collateral - a co-signer ## How do consumer proposals work? Consolidating debt under a [consumer proposal](https://grantthorntonlimited.ca/en/consumer-proposal/what-is-a-consumer-proposal) applies the same concept of merging all debt into a single payment; however, there are important differences. Unlike a consolidation loan, a consumer proposal isn’t funded by a lender, rather it's a formal debt relief solution administered by a[ Licensed Insolvency Trustee (LIT)](https://grantthorntonlimited.ca/en/debt-help-resources/articles/what-happens-when-you-meet-with-a-lit). This process involves an offer to your creditors to repay a portion of the debt you owe. Once accepted, consumer proposals can provide fixed and reduced monthly payments. There are several benefits to filing a consumer proposal, including the ability to [silence collection calls](https://grantthorntonlimited.ca/en/debt-help-resources/articles/stop-collection-calls-for-good), pay back less than you owe, and remain in control of your assets. [Learn more about why consumer proposals have become the more attractive option for debt relief. ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/why-are-consumer-proposals-becoming-the-more-attractive-option-for-debt-relief) A significant difference between a consolidation loan and a consumer proposal lies in the terms of your repayment: how much of your debt you are required to repay and your interest rate. Consolidation loans require you to pay back 100% of your debt at the interest rate set by the lender; whereas consumer proposals require you to pay a portion of your debt at 0% interest. It’s not uncommon for debt to be reduced by up to 80%! Additionally, while repaying a consolidation loan, your repayment can be easily derailed by taking on more debt, as there are no limitations on applying for new credit cards or loans. Under a proposal, all credit card and line of credit accounts are cancelled, and your credit rating is reduced to an R7, making it more challenging to get approved for credit during the term of the proposal. --- There is no cost to meet with a LIT and discuss the best options for your unique financial situation. We offer judgment-free, 30-minute consultations to help you find the best path to debt freedom. [Book online](https://grantthorntonlimited.ca/en/get-in-touch/contact-us) or call us today at 1-844-4GT-DEBT to start your path to a brighter financial future. About the Author Freida M. Richer CIRP, Licensed Insolvency Trustee ## Latest articles [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/67684/assets-CP-square.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [What happens to your assets in a consumer proposal? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/65155/recreational-vehicle-square.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [### What happens to an RV, boat, or ATV loan if you file a consumer proposal or bankruptcy in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/63555/influencer-survey.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) [### Influenced into debt: How social media impacts Canadians' finances ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) ## Subscribe to our newsletter Get tips and tools to help manage your finances and live debt free. \*I agree to receive communications from Doane Grant Thornton. I understand that I can unsubscribe at any time. ## **Take the first step** to debt freedom Speak to one of our debt solutions professionals during a free, no-obligation consultation. [ Book a free consultation ](https://grantthorntonlimited.ca/en/get-in-touch/contact-us) ## Related articles ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/67684/assets-CP-square.webp) ### [What happens to your assets in a consumer proposal? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) In most cases, a consumer proposal allows you to keep all of your assets while bankruptcy may require you to surrender certain non-exempt assets. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) ![Marina filled with sailboats and recreational boats along the Charlottetown waterfront on a sunny day.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/65155/recreational-vehicle-square.webp) ### [ What happens to an RV, boat, or ATV loan if you file a consumer proposal or bankruptcy in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) For many Canadians, recreational vehicles offer freedom, adventure, and unforgettable family memories. But if you’ve financed an RV, travel trailer, boat, ATV, snowmobile, or side-by-side, those monthly payments can become difficult to manage if life takes an unexpected turn. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) ![A woman in scrubs sitting on a park bench looking at her phone, with imagery of social media likes and spending surrounding her.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/63555/influencer-survey.webp) ### [ Influenced into debt: How social media impacts Canadians' finances ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) While social media may be free to use, the things it influences us to buy often come at a cost. As influencer marketing continues to grow, more Canadians are making purchases based on what they see online. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) ![A woman sitting with papers and a calculator in front of her](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/63201/cp-annulment-square.webp) ### [ What happens if you miss a consumer proposal payment? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-miss-a-consumer-proposal-payment) Missing a payment during your consumer proposal can feel scary—but it’s not the end of the road. This article explains exactly what happens if you miss a consumer proposal payment, how to avoid annulment, and what to do if your consumer proposal is annulled. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-miss-a-consumer-proposal-payment) ![A young woman sits with and supports an older woman holding a cane.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/Web-image-square/_articleThumbMedium/58677/caregiver-article-square.webp) ### [ Tips to avoid debt as a family caregiver in Canada ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-tips-to-avoid-debt-as-a-family-caregiver-in-canada) With the rising cost of living and long waitlists for long-term care, more Canadians are becoming family caregivers, but it can come with an emotional and financial cost. 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While the cost of living continues to climb across Canada, many Gen Z and millennial Canadians are packing up their apartments and returning to the nest as “boomerang kids.” [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-how-to-budget-when-your-adult-child-moves-back-home) ![Person looking down at bills with head in hand, surrounded by paperwork and an open laptop.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/56923/utilities-square.webp) ### [ What happens if you don’t pay your utility bills in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-dont-pay-your-utility-bills-in-canada) If you’re worried about unpaid electricity, heating, or water bills, you’re not alone. But disconnection isn’t immediate, and you usually have options to protect your service while you get back on track. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-dont-pay-your-utility-bills-in-canada)