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Living with debt isn’t easy and neither is paying it off. In fact, it can take years just to break even, due to the interest and fees you’re charged over time. When that happens, it can be tempting to seek drastic alternatives, like debt consolidation programs. But, before committing to any debt relief help, it’s important to know if the program and provider you chose is right for you.

Are All Debt Consolidation Programs A Good Debt Relief Strategy?

When it comes to debt consolidation, there are two types you should be aware of. A debt consolidation loan and a debt consolidation program (often referred to as a debt management plan).

A Debt Consolidation Loan

A debt consolidation loan can be found at most financial institutions. There are plenty of legitimate businesses in Canada, including most banks and credit unions, that offer debt consolidation loans to qualified borrowers. However, these types of loans are more difficult to get approved for and the borrower requires average or good credit.

A Debt Consolidation Program

On the other hand, if you want to enter a debt consolidation program, you’ll normally have to do it through a credit counselling agency. This program is great for those with poor credit as there is no credit score requirement. However, these debt consolidation programs are an informal proposal between you and your creditor, which is negotiated by your credit counsellor on your behalf. This means, unlike a consumer proposal or bankruptcy, it is not federally regulated and your creditor can choose to opt out of the program at any point in time.


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How A Debt Consolidation Program Work?

A debt consolidation program (or debt management plan) is where a credit counsellor contacts your creditors to broker a deal that allows you to repay your debt in monthly installments over a predetermined period. 

The goal is to leave you with a lower monthly payment and single installment plan, which should make the process more affordable than having numerous debts and interest rates to keep track of. 

Find out the difference between budgeting and debt consolidation.

Debt Consolidation Pros And Cons

While debt consolidation programs can be great under the right circumstances, there are always pros and cons to be aware of when it comes to choosing the right debt relief option for your needs. 


  • Lower Interest Rates – Depending on your creditors and how willing they are to negotiate with your credit counsellor, it is possible to have your interest rates reduced. A reduction in interest is not something a credit counsellor can guarantee, so be wary of those that say they can guarantee this. 
  • Faster Debt Payment – Although it depends on your level of debt, this type of program could make you debt-free in 3 to 5 years, which may be faster than dragging your debt out with minimum payments. Shorter payment plans coupled with lower rates can do a world of good. 
  • One Monthly Payment – The greatest thing about a debt consolidation program is that you can cover your qualifying debt using a single monthly repayment plan, making it easier to handle. Your credit counsellor may even be able to negotiate with the creditor and get your debt reduced.
  • Gradual Credit Improvement – The faster you pay your debts, the better it can be for your credit score, especially after the debt consolidation program has been removed from your credit report. On the other hand, consistently carrying high-interest debt can sometimes quickly ruin your credit. Everyone’s credit scores react differently, nothing is a guarantee when it comes to credit improvement. 

Find out what kind of debt can be consolidated with a DMP.


  • Not All Creditors Participate – A debt consolidation program is an informal process and not legally binding like a consumer proposal or bankruptcy. So, your creditors aren’t obligated to participate and may sue you or sell your account to a collection agency instead. 
  • Your Credit Accounts Will Be Closed – Debt consolidation programs also appear on your credit report. Afterward, you’ll have to close any associated credit accounts. Having no access to credit can make things difficult when you’re already in debt. 
  • Negative Credit Impact – Debt consolidation programs usually stay on your credit report for 2 years following your final payment (depending on which credit bureau you check with). During that time, you may only qualify for small amounts of new credit and extremely high rates.
  • Possibility of Rejection – Debt consolidation programs are tough to qualify for if you have a low income or too much debt. To be eligible, you need to prove that you’re capable of making payments on time. If not, you may have to resort to more drastic measures, like a consumer proposal or bankruptcy.
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Things To Watch Out For When Working With A Credit Counselling

  • Predatory Companies – As mentioned, most debt consolidation programs are legitimate but if you pick an unrecognized company, you may run into a fraudulent behaviour. These predators rely on your debt problems and can trick you into giving away your credit card or banking information. 
  • Fees – In certain provinces and territories, debt consolidation fees are controlled by the government. Companies and credit counsellors can sell their programs at any price that falls within regional limits. However, it’s possible to be charged other types of indirect fees along the way, even with a non-profit organization.

Working with a debt settlement company? Here are questions you should ask your debt settlement company.

Don’t Get Caught Off Guard! 

While there are legitimate debt consolidation programs available in Canada, there are always risks involved, even with recognized companies. So, be sure to research your debt consolidation source and find out about any costs before you give out your personal or financial information to anyone.    

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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