Debt Consolidation FAQs: Costs, Benefits, and Alternatives

Are you worried about the total cost of debt consolidation and whether it’s truly worth the investment? Researching interest rates and fees can be daunting, and you need concrete proof that using your home's equity is the smartest financial move for your specific goals.

Our team at 360Lending wrote this FAQ guide to give you the objective, data-driven analysis you won't get from a traditional bank. We detail every cost and highlight strategic uses (like high-interest debt consolidation) to help you clearly see the potential for a positive return on your investment.  

Get the financial clarity and justification now, then you can explore our other guides on:

• Debt Consolidation FAQs: Definitions and Basics

• Debt Consolidation FAQs: Requirements and Application Process

Is Debt Consolidation a Good Idea for Homeowners?

Yes, it is often a very good idea. Homeowners can use secured loans (HELOCs or refinancing) to consolidate high-interest debt at a much lower interest rate than unsecured loans. Most homeowners can reduce their interest payments by up to 50%, making home equity the strongest method mathematically to restructure high-interest debt.

What Is A Consumer Proposal?

A Consumer Proposal is a formal, government-regulated process filed through a Licensed Insolvency Trustee (LIT). It is a legal offer to your creditors to pay back only a portion of your unsecured debt (often reduced by up to 80% over a period of up to five years. Once accepted by creditors, it is legally binding and freezes all interest and collection actions.

Difference Between Consolidation vs. Consumer Proposal?

Debt Consolidation is a loan to restructure and repay 100% of your debt at a lower interest rate. A Consumer Proposal is a legal remedy to settle the debt for less than the full amount owed, making it the better choice if you cannot afford to pay back the full principal amount.

Can You Keep Your House with a Consumer Proposal?

Yes, you can keep your house with a Consumer Proposal as long as you continue to make all mortgage payments on time. A mortgage is a secured debt and is not included in the proposal, which only deals with unsecured debts. The proposal's legal protection against creditors helps free up cash flow to ensure you can maintain your mortgage payments.

Will a Consumer Proposal Affect Your Mortgage?

A Consumer Proposal does not directly affect the terms of your current mortgage as long as you remain current on payments. Your existing lender is legally required to honor the renewal. However, the proposal noted on your credit file may limit your ability to refinance or switch to a new "A" lender until the proposal is successfully completed.

Can You Get a Mortgage After a Consumer Proposal?

Yes, you can get a mortgage after a Consumer Proposal. While "A" lenders (major banks) typically require several years of clean credit after the proposal is discharged, "B" lenders (alternative lenders) will approve you sooner. To qualify, you must receive your Certificate of Full Performance and actively rebuild credit for 12-24 months.

How To File For A Consumer Proposal In Ontario?

To file a Consumer Proposal in Ontario, the process begins by meeting with a Licensed Insolvency Trustee (LIT) for a free assessment. The LIT drafts and files the proposal, which immediately stops all creditor collections. After creditors accept the offer, you make one fixed monthly payment to the LIT for up to five years, legally discharging the remaining debt.

How To File For Bankruptcy In Ontario?

To file for personal bankruptcy in Ontario, you must contact a Licensed Insolvency Trustee (LIT). The LIT will assess your financial situation, file the required documents with the Office of the Superintendent of Bankruptcy, and inform your creditors. Bankruptcy legally eliminates most unsecured debt and requires you to attend two financial counselling sessions.

Difference Between Bankruptcy vs. Consumer Proposal?

The key difference is asset risk and duration. A Consumer Proposal allows you to keep all assets (like your home and car) and typically takes five years or less to complete. Bankruptcy requires you to surrender non-exempt assets to the LIT but provides a faster, complete discharge of debt (often in nine months).

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