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Debt consolidation: honest guidance on whether it is right for you.
Consolidation can be a useful tool for people with manageable debt and good credit. For many others, a consumer proposal or another option may be a better fit. We will tell you which one that is, without any pressure or agenda.
- You repay the full amountConsolidation does not reduce what you owe. It restructures how you pay it.
- Can work well in the right situationIf your debt is manageable and you qualify for a lower interest rate, consolidation may help.
- Not always the best optionIf you cannot qualify for a better rate, or your debt is very high, other options may cost you less overall.
- A Licensed Insolvency Trustee can assess all optionsWe are not selling you a loan. We give you an objective view of every path available.
Day Group does not provide consolidation loans. We provide honest, objective guidance on all your options.
What is debt consolidation?
Debt consolidation means combining multiple debts into a single payment, usually at a lower overall interest rate. There are several ways to do this, and they are not all equal. Here is a plain-language overview of the four most common approaches.
Consolidation loan
A personal loan used to pay off multiple debts, leaving you with one monthly payment to the new lender. If the interest rate on the loan is lower than the average rate on your existing debts, you may save money over time.
To qualify, you typically need a reasonable credit score and sufficient income. If your credit has already been affected by financial difficulty, you may not qualify for a competitive rate, which removes most of the benefit.
Requires good credit
Home equity loan or HELOC
If you own your home and have equity, you may be able to borrow against it to pay off unsecured debts. Rates are typically lower because the loan is secured against your property.
The significant risk is that you are converting unsecured debt into secured debt. If you are unable to make payments, your home is at risk. This option requires careful consideration and is not appropriate for everyone.
Home at risk if payments missed
Balance transfer credit card
Some credit cards offer a low or zero-interest promotional period for balance transfers. If you can pay the balance off before the promotional period ends, this can be an effective short-term tool.
If the balance is not paid off before the promotional rate expires, you may find yourself at a high rate on the full amount. This option works best for relatively small balances that can be cleared quickly.
Works for smaller balances only
Debt management plan
Offered by non-profit credit counselling agencies, a debt management plan (DMP) involves negotiating with creditors to reduce or eliminate interest and establish a single monthly payment over a set period.
Unlike a consumer proposal, a DMP requires you to repay the full principal of your debts. Creditors are not legally required to participate, and not all will agree to a DMP. A consumer proposal may offer a better outcome for larger debt levels.
Full principal repaid
When consolidation may help, and when it may not.
Consolidation is promoted heavily, often by lenders with a financial interest in selling you a loan. Here is a more objective view of when it genuinely makes sense, and when a different option may serve you better.
- Your credit score is strong enough to qualify for a meaningfully lower interest rate
- Your total debt is manageable relative to your income
- You have a stable income and can reliably make the new monthly payment
- Your debts are mostly high-interest credit cards or personal loans
- You have not missed payments and your credit has not yet been significantly affected
- The new loan term does not stretch so long that you pay more in total interest
- Your credit score has already dropped and you cannot qualify for a competitive rate
- Your total debt is high relative to what you could realistically repay within 3 to 5 years
- You have CRA tax debt, which lenders will not typically approve a loan to pay out but a consumer proposal can include
- You have already missed payments and creditors are pursuing collections or garnishment
- The only loan you can qualify for has an interest rate close to your existing rates
- You have previously consolidated and are in the same position again
The consolidation cycle. A common pattern we see is consolidation that works initially, but is followed by new debt accumulation. Within two to three years, people find themselves with the consolidation loan payment plus new credit card balances. If this has happened more than once, a more permanent solution, such as a consumer proposal, may be a better fit for the long term.
Debt consolidation vs. debt settlement companies.
Debt settlement companies are not the same as consolidation lenders, and they are not Licensed Insolvency Trustees. They typically charge significant fees to negotiate with your creditors on your behalf, with no legal authority to compel creditors to participate and no guarantee of any outcome.
These companies cannot file consumer proposals or bankruptcies. They cannot provide you with a legal Stay of Proceedings. Their fees are paid regardless of whether the settlement is successful. The Office of the Superintendent of Bankruptcy and consumer protection agencies across Canada have issued multiple warnings about this industry.
If you are considering a debt settlement company, speak to a Licensed Insolvency Trustee first. The consultation is free, and you will get an honest comparison of what each path actually delivers.
- Upfront fees before any debt is settled
- Promises to reduce or eliminate your debt by a specific percentage
- Advice to stop paying creditors while they “negotiate”
- Claims of special relationships with creditors or the CRA
- No mention of Licensed Insolvency Trustees or the Bankruptcy and Insolvency Act
What Day Group Inc. actually does in this conversation.
We are not a consolidation lender. We do not earn a fee if you take out a loan. As a Licensed Insolvency Trustee, our role is to give you an honest assessment of every option available to you, including consolidation, so you can make an informed decision.
Review your full financial picture
We look at all your debts, your income, your assets, and the nature of what you owe. CRA debt, student loans, and secured debts are treated differently under different options.
Assess whether consolidation is viable
We look at whether your credit and income would allow you to qualify for a consolidation loan at a rate that actually improves your situation. If it would, we say so.
Present all alternatives
We walk through what a consumer proposal would look like for your situation, what bankruptcy would involve, and what other formal and informal options are available. Each one is explained in plain language.
You decide
There is no pressure to choose any particular option. Our job is to make sure you have the information you need to make the right decision for your situation. The consultation is free and there is no obligation to proceed.
Already tried consolidation?
Many people who call us have already consolidated once, or have been turned down for a consolidation loan. If your credit or income does not support a meaningful consolidation, a consumer proposal may achieve a better outcome at a lower total cost.
A consumer proposal can include CRA debt. Lenders will not typically approve a loan to pay out tax debt, so consolidation is rarely available for it. If you owe the CRA, this alone may make a proposal the more practical option.
Consolidation, consumer proposal, and bankruptcy.
A plain comparison of how the three main debt relief paths differ on the things that matter most.
Debt Consolidation
Consumer Proposal
Bankruptcy
Total amount repaid
Debt ConsolidationFull amount owedPlus interest on the new loan.
Consumer ProposalNegotiated settlementTypically less than the full amount owed.
BankruptcyBased on assets and incomeOften less than full amount for people with low assets.
Interest
Debt ConsolidationContinues on new loanAim is a lower rate, but interest still accrues.
Consumer ProposalStops on date of filing
BankruptcyStops on date of filing
CRA tax debt included
Debt ConsolidationNot in practiceCRA will accept loan proceeds as payment, but lenders will not typically approve a loan to pay out tax debt.
Consumer ProposalYes, in most cases
BankruptcyYes, in most cases
Creditor protection
Debt ConsolidationNoneCreditors are not legally required to stop collection activity.
Consumer ProposalImmediate Stay of Proceedings
BankruptcyImmediate Stay of Proceedings
Credit impact
Debt ConsolidationMinimal if paid on timeMissed payments before consolidation may already be recorded.
Consumer ProposalR7 rating on included accountsRemoved 3 years after completion or 6 years from filing.
BankruptcyR9 rating on included accountsRemoved 6 years after discharge for first bankruptcy.
Requires credit qualification
Debt ConsolidationYesGood credit and income required to access competitive rates.
Consumer ProposalNoBased on your ability to make proposal payments, not your credit score.
BankruptcyNo
Federally regulated
Debt ConsolidationDepends on the lender
Consumer ProposalYes, under the BIA
BankruptcyYes, under the BIA
An objective view from a federally regulated professional.
Most people who call to ask about debt consolidation are actually looking for the best solution to their debt problem. Our job is to make sure you find it, even if it is not a formal insolvency option.
No pressure to use our own services
We earn a regulated fee when we administer a consumer proposal, and nothing at all if you resolve your debt with a consolidation loan. We say that openly, because our obligation as federally regulated professionals is to set out every option and let you decide. If consolidation is the better fit for you, we will tell you that.
Licensed exclusively by the federal government
Only Licensed Insolvency Trustees can file consumer proposals and bankruptcies in Canada. This is a federal designation, not a certification course. Our licensing is held to strict professional standards.
Prairie-based, prairie-focused
We serve Alberta, Saskatchewan, and Manitoba. We understand the local financial landscape, the industries where clients work, and the specific provincial exemptions and rules that affect your options.
Day Group Inc. is a Licensed Insolvency Trustee regulated by the Office of the Superintendent of Bankruptcy Canada, serving Alberta, Saskatchewan, and Manitoba. LIT licence number: 4172. The information on this page is for general informational purposes only and does not constitute legal or financial advice.
Frequently asked questions about debt consolidation.
Plain answers to the questions we hear most often. A free consultation will answer the questions specific to your situation.
Is debt consolidation the same as a consumer proposal?
No. They are fundamentally different. Debt consolidation involves borrowing money to repay your full debt balance, typically from a bank or lender. You still owe the full amount; you are just paying it to a different party, ideally at a lower interest rate.
A consumer proposal is a legal settlement filed by a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act. It may allow you to settle your unsecured debts for less than the full amount owed, with interest stopped on the date of filing. It also provides legal protection from creditors, which a consolidation loan does not.
Can I consolidate CRA tax debt?
Not through a standard consolidation loan. Lenders will not typically approve a loan to pay out tax debt, so in practice a consolidation loan is rarely available for CRA debt. The Canada Revenue Agency will accept loan proceeds as payment if you can obtain financing, but a consolidation loan does not settle or discharge CRA debt — it moves the balance to a new lender.
CRA tax debt can be included in a consumer proposal or a personal bankruptcy, which is one reason many people with significant CRA debt find that a formal insolvency option is more practical than consolidation.
Will consolidating my debt hurt my credit?
Applying for a consolidation loan will typically result in a hard inquiry on your credit report, which can temporarily lower your score slightly. If the loan is approved and you make payments on time, consolidation can actually help your credit over time.
If you were already missing payments before consolidating, those missed payments are already recorded on your credit report and consolidation does not remove them. The key is making consistent payments going forward.
What if I cannot qualify for a consolidation loan?
If your credit score or income does not allow you to qualify for a consolidation loan at a competitive rate, a consumer proposal is often the most practical alternative. Unlike a consolidation loan, a consumer proposal does not require a credit check. Eligibility is based on your ability to make proposal payments, which your trustee determines based on your actual income and financial picture.
A consumer proposal also provides immediate legal protection from creditors and stops interest from accruing, which a consolidation loan cannot do.
Are debt settlement companies trustworthy?
Debt settlement companies are a mixed category. Some operate ethically, but the industry has been the subject of significant consumer protection warnings across Canada because many companies charge high fees, make promises they cannot keep, and have no legal authority to compel creditors to settle.
A Licensed Insolvency Trustee can achieve outcomes that debt settlement companies cannot: consumer proposals are legally binding on all creditors once accepted, and the Stay of Proceedings is automatic and legally enforceable. Before engaging a debt settlement company, a free consultation with a Program Manager will give you a clear comparison of what each path can realistically deliver.
How do I know which option is right for me?
The honest answer is that it depends on the full details of your situation: the total amount of debt, the types of debt, your income, your assets, your credit score, and your goals. There is no single answer that applies to everyone.
A free consultation with a Program Manager is the most reliable way to find out. We review your complete financial picture and walk you through what each option would actually look like for you. There is no cost and no obligation to proceed with anything.
Today is the day.
The first conversation costs nothing. A Licensed Insolvency Trustee will review your full situation and tell you honestly whether consolidation, a consumer proposal, or another option is the right fit for you.