Debt consolidation and debt relief answer different problems. Consolidation replaces several debts with one new loan or line of credit, so you make one payment instead of many, but you still owe the full balance plus the interest on the new product. Debt relief means a route that changes the debt itself or stops creditors from collecting it: a debt management plan with the creditors who agree to it, a consumer proposal, or a bankruptcy. The first reorganizes the payments. The second changes the obligation.

That single difference decides most of what follows: what it costs, what happens to your credit, whether your home is at risk, and what happens if a payment is missed.

One test that separates them

Ask one question of any option you are offered: after I sign, do I still owe every dollar I owe today?

With consolidation, the answer is yes. The Financial Consumer Agency of Canada describes debt consolidation as combining multiple debts into one, and that is all it does. Your creditors are paid off by the new lender, and the whole amount now sits with that lender. Nothing is forgiven, and no law requires your creditors to pause collection while you arrange it, because nobody was asked to give anything up.

With the formal debt relief routes, the answer is no, or not in the same way. A consumer proposal is an offer to your creditors to pay all or some of what you owe over a set period, and once its terms are met you are legally released from the debts it included, with a few exceptions such as support payments. A bankruptcy uses your non-exempt assets and, in some cases, part of your income to satisfy your debts, then releases you from most of them. A debt management plan sits in between: you still repay the whole debt, but the plan may include interest relief, and it only binds the creditors who accept it.

Side by side

Option	What happens to the amount you owe	Who you pay	Are collectors required to stop?
Consolidation loan	Nothing. It moves to one new lender	The new lender	No. Your old creditors are simply paid off
Home equity loan or line of credit	Nothing. It moves onto your home	The lender holding your home as collateral	No
Credit card balance transfer	Nothing. It moves to a new card	The new card issuer	No
Debt management plan	Whole debt repaid, sometimes without interest	A credit counselling agency	Only the creditors who agreed
Consumer proposal	All or part, as the accepted offer says	A Licensed Insolvency Trustee	Yes, by law, for unsecured creditors
Bankruptcy	Released from most debts at discharge	A Licensed Insolvency Trustee	Yes, by law, for unsecured creditors

The federal regulator’s comparison of debt solutions is the source for the last three rows. Only a Licensed Insolvency Trustee can administer a consumer proposal or a bankruptcy.

When consolidation makes sense

Consolidation is not a bad product. It is a narrow one. It does its job when three things are true.

The new rate is lower than the rates you pay now. That is the whole point of moving high-interest balances into one lower-interest product. The FCAC’s warning is the other half: if you only qualify for a higher rate than your current products, consolidation will likely increase your debt. Lenders set that rate from your credit history, so the people who most need relief are often the ones offered the worst terms.

You can pay it off, not only carry it. A longer repayment period lowers the monthly payment and can cost more in interest over the life of the loan. With a line of credit, the monthly payment often covers only the interest, and paying down the principal is up to you.

The spending that built the debt has stopped. Paying off the old cards does not close them. If they fill up again, you now have the consolidation loan and the new balances.

A balance transfer has its own clock. The promotional rate usually lasts 6 to 18 months, you can lose it by missing a payment, and there is usually a fee to move the balance. It suits a balance you can clear inside that window, not one you cannot.

When consolidation is the wrong tool

The same FCAC guidance names the first two cases below. The other two follow from how consolidation works:

Your credit history is poor, so the rate you qualify for is higher than what you pay now.
You apply with several lenders in a short time to find a yes, and those applications can lower your credit score.
The debt is larger than your income can repay in full, at any rate. Moving an amount you cannot repay into one account does not make it repayable.
Collection has already started. A garnishment or a lawsuit does not stop because you took out a new loan elsewhere.

That last case is where the formal routes differ most. When a consumer proposal or a bankruptcy is filed, most unsecured creditors are legally required to stop collection action, including lawsuits and wage garnishments. Secured lenders, such as a mortgage or car lender, and family support enforcement are not covered by that stop.

The home equity question

The largest consolidation products are secured by your home. A home equity line of credit is, in the FCAC’s words, a revolving credit product secured by your home. The lower rate comes from that security. It also means that if you do not pay back what you owe, the lender may take possession of the home, and it reduces the equity you have for later.

Think about whose debt it is before you borrow against the house. Unsecured card debt in one spouse’s name becomes a debt secured on a home both spouses may have rights in. Our home page explains why we tell people not to use shared home equity to pay debt that may belong to only one of them, and why protecting that equity for later in life matters. The formal routes treat assets by their own rules instead: some are exempt, and which ones varies from province to province.

What each one does to your credit

Consolidation can help your credit score if you make every payment on time and it reduces the number of high balance accounts you carry. It can also hurt it, through the applications above or through missed payments on the new loan.

The formal routes each leave a defined record:

Debt management plan: your credit report notes the arrangement with a credit counsellor for 2 years after you complete it.
Consumer proposal: Equifax removes it 3 years after you complete the proposal or 6 years after it was filed, and TransUnion 3 years after completion or 6 years after the date you defaulted on the account, whichever comes first.
First bankruptcy: it shows for 6 years after discharge with Equifax, and 7 years with TransUnion in Ontario.

So the comparison is not “consolidation protects my credit and relief ruins it.” A consolidation loan you cannot keep up with damages your credit too, and you are left owing the full amount. A route with a defined end leaves a defined mark.

What to decide before you choose either one

Five questions sort most people into the right lane:

What do you owe, to whom, and is any of it CRA debt, business debt or a personal guarantee?
Can your income repay all of it at a lower rate, within a period you can live with?
Has collection started: calls, a lawsuit, a garnishment, a frozen account?
What do you own, what is exempt in Ontario, and how is the equity in your home properly calculated?
Does a spouse or partner have rights in the assets, or share any of the debts?

If the answer to the second question is a clear yes and the third is no, consolidation may be enough, and a lender or credit counsellor can take it from there. If the answers are less clear, you need the full picture before you sign anything, because a consolidation loan secured on your home is hard to undo.

Where Get Total Debt Relief fits

We are not Licensed Insolvency Trustees. What we give you is the full picture before you commit to any route. The free consultation is a complete review of your debt, your assets and your exposure, including your allowable exemptions, how your equity should be calculated, and spousal or partner rights. You then decide how you want to proceed, if at all.

For consumer proposals, bankruptcy and the options between them, see our page on debt relief for Vaughan and Ontario residents. If the debt is personal, business or tax debt, our page on personal, business and tax debt relief in Ontario covers what we deal with. You can book a free debt relief consultation or call 647-276-8844. The office is at 100 Bass Pro Mills Drive, Unit 49, in Vaughan, open Monday to Friday, 8am to 5pm, and the phone is answered until 9pm.

Common questions about debt relief and debt consolidation

Is debt consolidation the same as debt relief?

No. Debt consolidation combines several debts into one new loan, line of credit or card, and you still owe the full amount. Debt relief refers to routes that change the obligation or stop collection by law, such as a consumer proposal or a bankruptcy, or a debt management plan with creditors who agree to it.

Does debt consolidation stop wage garnishment or collection calls?

Not by itself. A consolidation loan pays off the creditors it covers, and any creditor it does not cover can keep collecting. When a consumer proposal or a bankruptcy is filed, most unsecured creditors are legally required to stop collection action, including lawsuits and wage garnishments. Secured lenders, such as a mortgage or car lender, and family support enforcement are not covered by that stop.

Is a debt management plan a form of consolidation?

It is a different thing. A credit counselling agency does not provide a consolidation loan. Under a debt management plan you make one payment to the agency, which pays the creditors who accepted the plan. You still repay the whole debt, sometimes without interest, and the plan can be cancelled if you do not pay on time.

Should I use my home equity to consolidate debt?

Be careful. A home equity loan or line of credit is secured by your home, so the lender may take possession of it if you do not pay back what you owe, and it reduces your equity for later. If the debt belongs to only one spouse, borrowing against a home you both have rights in moves that risk onto both of you. Get a full review of your options first.

Will I pay less with consolidation or with a consumer proposal?

It depends on your debt, your income and your assets. With consolidation you repay everything, and the saving comes mainly from a lower rate. With a consumer proposal you typically pay back a portion of what you owe, and the amount depends on your situation and on what your creditors accept. A free review sets the two side by side before you choose.

Where we fit

Get Total Debt Relief is a debt consulting and representation firm, not a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy. However, he is not the only one you should get your information from. Unlike a Trustee, we look to preserve your equities and assets, not liquidate them. What we do is make sure you only pay what you have to pay, not what someone thinks you can pay. We use every tool available to make sure you protect your home, your business and other equities as well as Spousal rights. Once you’re ready to move forward with whichever process you choose, that’s when it’s time to move on to the selection of a Trustee. Please keep in mind that if for any reason, you have to deal with a legal matter during your Bankruptcy or Proposal, a Trustee can NEVER legally represent you. However, he CAN act against you. Choose your representation wisely!

DISCLOSURE:

Get Total Debt Relief is a debt consulting and representation firm. We are not a Licensed Insolvency Trustee, and we are not connected to the Canada Revenue Agency or any government body.

Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy.

OUR SERVICE:

However, any Trustee you choose can’t legally represent you over your Creditors nor can he give you any advice that will benefit you over your Creditors. The Trustee’s job is to maximize how much he can get from you and your estate for the benefit of your Creditors and the more he collects in a Proposal, the more he makes.

What we do is the work before the filing and the path you choose will come from the advice and information that goes with it. More importantly, we use tools that are not available to the Trustee because of who’s interests he represents. We go through your whole situation with you. We answer your questions, for as long as it takes and as many times as you need to ask them. Every consultation is free and if or when you decide to move forward, you’ll know which option best suits you, your family and or your business. And, unlike the Trustee, we will NEVER use the information you’ve given us against you in Court. The bottom line is that we don’t look to liquidate your assets and equities, we look to protect them.