Debt Consolidation and Credit Consolidation

First and foremost, it’s important to understand exactly what Debt Consolidation and Credit Consolidation means. In reality, both terms mean the same thing: the consolidating of your debts owed to your creditors.

How Do You Consolidate Your Debts?

Now that we have that straight, let’s move on to more important matters – how do you consolidate your debts? There are, in fact, several ways to go about your Debt Consolidation, including:

1. A Debt Consolidation Loan at your bank or credit union (or line of credit, etc.);
2. Consolidate with a home equity loan;
3. Consolidate with a Debt Management Program at a non-profit Credit Counsellor;
4. Consolidate using a Consumer Proposal, filed with a Licensed Insolvency Trustee (“LIT”).

First Steps

Before we go any further, as a Licensed Insolvency Trustee at McLennan & Company, we will always recommend that our clients try and handle their debt issues themselves, if they can afford to. That means options 1 and 2 above.

Why? Involving a Credit Counsellor (for Debt Management Program) or a Licensed Insolvency Trustee (for a Consumer Proposal) will bruise your credit-if it’s not already bruised.

What If You Can’t Qualify for a Loan?

If you find yourself in a situation where you don’t qualify for a loan, you have a few options. You either have to enter a Debt Management Program with a non-profit firm, or, see a Licensed Insolvency Trustee, such as McLennan & Company Ltd.

In deciding which option is best, we recommend you talk to us at McLennan & Company, so that we can review with you what you can afford to pay your creditors. For example, a Debt Management Program requires 100% payout to the creditors, plus costs for the program, plus interest in some cases.

When is a Consumer Proposal the Best Option?

When evaluating the best options for managing debt, there are several important factors that may lead to a Consumer Proposal making the most sense for your specific situation, including:

1. You can’t afford to pay the creditors in full;
2. You have government debt that is unaffordable, including income tax;
3. You have pay day loans.

In other words, a Consumer Proposal is the only option that pays less than 100% to the creditors. It does, however, require 51% creditor approval based on dollars owed.

Are there advantages to a Consumer Proposal for Debt Consolidation?

There are several advantages to doing a Debt or Credit Consolidation with a Consumer Proposal, including:

1. Immediate freeze on interest when filed;
2. A legal stay of proceedings, preventing creditors from collecting and garnisheeing;
3. You only have to make one monthly payment, which makes it easier to manage your monthly expenses;
4. The payments can be geared to your income schedule, if it fluctuates;
5. You can make extra payments, or even pay the Proposal off early without a penalty;
6. There is no charge for the initial meeting to discuss a Consumer Proposal at most LIT firms, and certainly at McLennan & Company Ltd.

What Can Affect Your Credit Consolidation Options?

Of course there are unique circumstances that can affect your Credit Consolidation options, some of which are:

1. A co-signer is connected to your debts;
2. Whether you have any assets available, i.e. as collateral, etc.;
3. Your current credit score;
4. Your on-going monthly cash flow needs;
5. Whether you have family or friends that will support you financially.

McLennan & Company Ltd Can Help

The important ‘need to know’ in debt consolidation is that there is no charge for an initial meeting at McLennan & Company Ltd., and most Licensed Insolvency Trustees. This will enable you to have a stress-free meeting to discuss your options, which we hope will lead to a brighter future. Contact our team of experienced Licensed Insolvency Trustees today for more information.