What can you do if you have a few problem debts, as in a credit card amount, a cell phone bill, or an unsecured finance loan, to pay them off faster? Should you consolidate your debts with a new loan or with a credit counselor’s debt management plan? And when do your debts get too large for either of these debt consolidation solutions to work? If your financial position is more serious, when should you consider a consumer proposal or bankruptcy as a type of debt relief? Here’s a deeper look at all the options so you can decide.

What is a Debt Management Plan?

A debt management plan, or DMP, is a debt repayment program created through a non-profit credit counselling service in which you pay off certain unsecured obligations with one reasonable monthly payment. Your credit counsellor works out an agreement with your creditors to include your debts in the program, and he or she may also be able to negotiate an interest decrease or interest freeze.

What is the impact on your Credit Score?

With each option, there are various credit score elements to consider:

  • A debt management plan will be listed as a repayment programme on your credit record. This notification will appear on your credit report for a maximum of six years and will have an impact on your ability to obtain new credit during that time.
  • A debt consolidation loan, on the other hand, will appear on your credit report as a new trade account. A debt consolidation loan can lower your credit utilisation rate, which may assist improve your credit score, as long as you don’t run up your previous credit card amounts again.

Debt Consolidation vs Debt Management Plan vs Debt Relief

Both a debt management plan and a debt consolidation loan run the risk of you having too much debt for either to succeed.

Both options require that you be able to pay off your loans in full, plus any additional fees or interest. If you can’t afford to keep up with the payment terms under either choice, you risk additional defaults, lower credit scores, and, worst of all, a longer period of debt.

Consider a customer proposal as an alternative. A consumer proposal can help you consolidate your debt and get out of debt. A consumer proposal is an interest-free debt settlement solution that can help you get out of debt by improving your cash flow.

Getting Help

If you have a lot of debt, and neither option seems affordable, contact us for a consultation and we will help you understand the pros and cons of all debt consolidation options, including a debt management plan, debt consolidation loan and a consumer proposal. Contact us at [email protected] for a consultation and an analysis of your situation to come to a solution.

Disclaimer: Canadian-debtrelief.com is a debt consultancy service, we are not an authorized blogsite and are only advisors providing you with the tools and information to help you get out of debt.