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A consolidation loan is a loan that you negotiate with a lender in order to roll several monthly payments into one payment, at a lower interest rate than you are currently paying. You will probably be required to give up most, if not all, of your credit cards by the lender. Debt consolidation loans are not specifically noted on your credit score. Consolidation loans can be a good solution if you have stable finances and will be able to refrain from building more debt while you are paying off the loan. The negative aspect of consolidation loans is that they have a relatively high interest rate (for a bank loan). Debt consolidation does not stop wage garnishments.
A consumer proposal can only be negotiated by a trustee. If you owe $12,000 in debt, for example, the trustee may persuade the creditors to accept a repayment of $7,000. At this point, no more interest can be added to your debt. Creditors can no longer contact you for repayment and they must halt any wage garnishments. You will also be expected to surrender credit cards. Consumer proposals lower your credit score for three years after payment completion.
Here’s a comparison of payment differences between a consolidation loan and a consumer proposal:
Amount owing: $12,000
- Consumer Proposal: debtors accept repayment of $7,000. At no interest, you pay $250 and are debt free in 28 months.
- Consolidation loan: bank lends you $12,000 at 8% interest. You pay $471.25 for 28 months before becoming debt free.
The consumer proposal saves you over $6,000.
IN THIS SECTION
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- Why did my trustee tell me to file all outstanding tax returns?
- I’m declaring bankruptcy because of taxes. Is this allowed?
- Will I still owe my student loan after bankruptcy?
- I can’t afford to pay back my student loan and it’s been less than seven years since I left school-what are my options?
- How long does bankruptcy last?
- Can I keep my car during bankruptcy?
- Can I keep my RRSP during bankruptcy?
- Can I keep my home if I declare bankruptcy?
- Will I still be able to rent an apartment or home if I declare bankruptcy?
- Can I keep a credit card during bankruptcy?
- Is it okay to use a credit card if I am thinking about bankruptcy?
- Can I get a checking account after bankruptcy?
- I co-signed on a loan for someone who declared bankruptcy. What happens now?
- If I’m married and I file for bankruptcy, does it affect my spouse’s credit?
- If my spouse declares bankruptcy and I am listed on their credit cards, am I responsible for the debt?
- I am divorced and my ex has declared bankruptcy. Do I still owe for debts and credit cards that I co-signed with my spouse?
- If I file for bankruptcy, will it be noted on my spouse’s credit file?
- Will filing for bankruptcy affect my job situation?
- Who will find out about my bankruptcy?
- Can I get utility services (telephone, cable, hydro, gas, etc.) after bankruptcy?
- Can I keep any money if I declare bankruptcy?
- What is surplus income?
- Can I go to jail for not paying my debts?
- The collection agency is threatening to take me to court: can they do that?
- What happens if a collection agency takes me to court?
- I am behind on my debt payments; can a collection agency take my furniture, electronics, clothes, etc.?
- I am being harassed by a collection agency: what can I do?
- Can I stop a wage garnishment?
- How do I find out if someone is bankrupt?
- What is Chapter 7 bankruptcy?
- What is Chapter 13 bankruptcy?
- What happens if I live in both Canada and the U.S. and declare bankruptcy?
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