Why is a consumer proposal better then Debt Settlement?

Why do you think that Consumer proposal is better then Debt Settlement? How would both impact on my credit rating or score? How long will it stay on my credit report?

Posted from: Ontario

One Response to “Why is a consumer proposal better then Debt Settlement?”

Barton Goth – Goth & Company Inc. -Trustee in Bankruptcy said...

A debt management plan is often a good option for people who can afford to pay the full balance of their debts over a period of time, but are unable to qualify for a debt consolidation loan

In a debt mananagment plan the credit counselling agency “pools” your unsecured debts together so that you are only required to make a single monthly payment. The agency then divides your payment amongst each of your creditors, with the larger creditors getting a bigger share of payment.

The biggest advantages of a debt management plan are:

•Relief from collection efforts (the phone calls should stop);
•A single monthly payment;
•Reduced and sometimes zero interest charges; and

The biggest disadvantage to a debt management plan is that it is not a legal procedure – it is a voluntary agreement between you and your creditors. The result is that your creditors all have to agree, which is often difficult to accomplish. In addition, it is not legally binding on your creditors nor does it have the ability to automatically stop a garnishment order. A third thing to be aware of are the fees. The credit counselling agency charges a fee, and bedause it is voluntary many of your creditors may continue to charge interest. Finally, the impact on your credit is often the same as filing a consumer proposal. So the net effect is that the debt management plan can be more expensive and result in the same impact on your credit.

Now it is important to take this with a grain of salt, as not all debt management plans are created equally. Make sure that prior to entering into a debt management plan as for references, and if possible ask for some examples of actual plans that they have actually been involved in.