Debt Management vs Consumer Proposal

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Trying to decide which debt relief solution is right for you a Debt Management Plan or a federally regulated program like a Consumer proposal can be tricky. In this blog, we discuss the pros and cons of Debt management vs Consumer proposal.

You’ve tried just about everything to pay down your debts. You started a personal budget to help you track your monthly expenses. You cut costs and pinched pennies so that you could pay off your creditors faster. You tried your best to increase your income, taking on odd jobs and selling household items. You’ve even considered applying for a consolidation loan to reduce all of those obligations to a single high-interest payment.

After all of that effort, you’re still struggling to make any progress with your debt repayment. The debt load is too big for you to tackle with your income alone. The interest rates are too high for you to keep up with.

At this point, you don’t need to find a better debt repayment strategy. You need a debt erasing strategy. You need something that will pause interest, eliminate penalties or reduce your total debt so that you can finally get the debt-free future that you’ve been hoping for. 

So, what are the debt erasing strategies available to Canadians?

Debt Management Plan

A debt management plan (DMP) is an informal offer made by a credit counsellor to your creditors, asking that they consolidate your debts into a reasonable monthly payment. Sometimes, the offer will ask that creditors remove interest and penalties from your debt or extend your payment schedule.

Do your research into a credit counselling agency before you sign up for any of their services. Check to see their connections with national and provincial associations, like Credit Counselling Canada, the Canadian Association of Credit Counselling Services and the Ontario Association of Credit Counselling Services. Check with the Better Business Bureau to see whether there are any unresolved complaints about them. Ask for the counsellor’s credentials and experience and look for any of the following red flags:

  • Promising to eliminate the majority or all of your debts
  • Promising to reduce your debts very quickly
  • Promising that you will get an excellent credit score
  • Promising to help with student loans, income tax, car loans or mortgages
  • Charging a fee for the first consultation

Debt Settlements Are Not the Same

Do not mix up debt management plans with debt settlements. These are very different services.

Debt management plans are offered by for-profit and not-for-profit credit counseling agencies. Debt settlements are strictly performed by for-profit companies that are notorious for preying on the vulnerabilities of desperate debtors.

A debt settlement company will ask you to give them the payments that you would normally send to your creditors. They will hold onto these payments until they accumulate a significant lump sum. After this extended period of non-payment, the company will try to negotiate with your creditors by asking them to accept a lower debt repayment (the lump sum they’ve accumulated) instead of what you owe. This is a very risky strategy. If your creditor refuses to accept this lump sum, you could end up with more debt than ever.

Debt Management vs Consumer Proposal

The main issue with Debt Management Plans is that they’re not legally binding. A credit counsellor has no authority over your creditors. If a creditor doesn’t want to make an agreement, they don’t have to respond to your counsellor’s calls. If they change their mind, they could choose to break the agreement and go back to their collection actions. Your counsellor cannot guarantee good results.

What is a Consumer Proposal

A consumer proposal has some similarities to a debt management plan. It’s also an agreement made between you and your unsecured creditors. The agreement consolidates your debts into one monthly payment. The purpose of this agreement is to make your debt repayment much more manageable so that you gain more control over your finances.

However, a consumer proposal has some key differences that make it far more effective at erasing debt. First, the proposal asks that your creditors accept a reduced portion of your total debts. You could reduce what you owe by up to 80%. That takes a huge weight off your shoulders. Second, the proposal guarantees that all interest and penalties will stop the moment that it goes into effect. Your debt will not grow as time goes on.

Unlike debt management plans, a consumer proposal deals with all of your unsecured debts, including income tax and student loan debt so you do not have to make separate payment arrangements with these creditors like you would in a debt management plan.

Another key difference between debt management vs a consumer proposal is that consumer proposals are performed by Licensed Insolvency Trustees, not credit counsellors.

Licensed Insolvency Trustees:

Licensed insolvency trustees are the only debt professionals that have the authority to perform government-regulated insolvency processes, including consumer proposals, division one proposals and bankruptcies. They are granted a license through the Office of the Superintendent of Bankruptcy (OSB) and must adhere to a strict code of ethics in order to keep that license. Their entire purpose is to help people and businesses who are dealing with debt in Canada.

If you need to talk to a licensed insolvency trustee, you should come to David Sklar & Associates. Our trustees have been helping people struggling with debts in the Greater Toronto Area for years. We have received many awards and accolades for our work, including the Canadian Business Award for Licensed Insolvency Trustee of the Year and the number one spot in Trustpilot’s Canadian Bankruptcy Service Category.

Contact us to book a free consultation, where one of our trustees will assess your finances and talk about the best solutions to relieve your debt problems. Before that consultation, feel free to explore our website for practical tips for debt relief and money management.

Why Licensed Insolvency Trustees Are Important:

Insolvency processes performed by a licensed insolvency trustee are legally binding. This means that creditors must adhere to the terms of the process or risk facing legal consequences. So, if you file a consumer proposal and the majority of your creditors agree to its terms, none of your creditors can back out of the agreement, period. They cannot break the rules and try to collect more funds from you.

A process like a consumer proposal comes with more security than a debt management plan. You don’t have to worry about the debt erasing strategy falling through at a moment’s notice. As long as you comply with the terms, the proposal should go forward without any trouble. 

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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The best decision I've made was to contact David Sklar & Associates, they are experts in this matters and also have dedicated Licensed Counsellors that provide the best customer support, like Rhoda Lewis, who I highly recommend. She worked tirelessly on my case, explaining ever detail to me willingly. She demonstrates a true interest in her clients. I appreciate how she patiently walked me through what to do, step by step. I now have control over my finances, as a result my life is much more peaceful and I can focus on what matters. Thank you!
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20:18 16 Jun 22
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Peggy Bulger
15:10 14 Jun 22
Jerry at David SKLAR helped me thoroughly understand my options and made me feel at ease. If you are looking at this type of service/help, I 100% recommend you give them a call.
Colleen H
12:50 14 Jun 22
Rhoda is a wonderful person, She help me and guided me throughout the process. I couldn’t do it without her support and expertise. Now I can start fresh and full of hope of a better life ahead of me.
ariezel erandio
21:33 06 Jun 22
The service I recieved from David Sklar and Associates was great. I was able to meet with Christin Sylver. She is kind, understanding and, professional. She was able to answer all the quesions that I had regarding my debt. At the end of our meetings, I felt that there is a heavy burden lifted from my shoulders. I recommend Chistine to anyone who is looking into debt relief.
Aliya H
12:11 04 Jun 22
Jerry is a very patient person, he answered all my questions and made this experience so smooth and easy for me. I was not sure what to expect but dealing with him made me feel so much better. He sure knows what he is doing and how to put people at ease for sure (should have done this long ago). I recommend him to anyone I am so glad I had him on my side and now to do my part. Thanks Jerry ur greatPattie
Patty Murphy
21:34 18 May 22
Rhoda Lewis helped me achieve a fresh start two and half years ago! She was very professional with a very warm, caring personality! I emailed her today with a question and she responded quickly. She's great at her chosen profession!!
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01:24 11 May 22
Nothing but good things to say about Jackie. She was so nice and so understand and everything was so quick and easy. In a matter of a week, there was the solution that I never thought was possible. Thank you so very much for everything that you have done. ❤️❤️❤️
Cassandra Keenan
21:05 10 May 22
I was in a lot of debt and stress, Jackie Stanley with David Sklar & Associates was very professional, and extremely helpful with getting out of debt. I should of did this sooner, they take the all the weight and stress of a persons shoulders, amazing team at David Sklar & Associates!!
Hubert Z
03:08 10 May 22
Jackie helped me out during a really tough time and she made the entire process very easy and painless. I highly recommend reaching out to her if you find yourself in any financial trouble. You won’t be disappointed!
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