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Credit Counselling vs Consumer Proposal: What If You Own a Home?
Rates and cost ranges below were verified on 19 August 2026. Rates move — everything here is a range, not a quote.
You have been given two names — a credit counselling agency and a Licensed Insolvency Trustee — and you are trying to work out which one to ring. If you own a home, there is a third option worth putting beside both of them: using the available equity to pay the debt off.
All three work. They just cost you different things: money, credit, or control. The job is to work out which cost you can actually carry.
A debt management plan repays 100% of what you owe with interest reduced, and it is reported on your credit history for a shorter period. A consumer proposal is the only one of the three that can legally reduce the principal, and it stays on your file longer. Home-equity consolidation pays the creditors in full and adds neither a plan nor a proposal to your history — but it moves the debt onto the house. If you own a home with usable equity and the income to carry it, all three deserve to be compared before you choose.
- Debt management plan: a counselling agency asks your unsecured creditors to reduce or stop interest; you repay the full principal, usually inside five years. It covers unsecured debt — not your mortgage or car loan.
- Consumer proposal: filed by a Licensed Insolvency Trustee, it can settle for less than you owe, and once accepted it binds every creditor it covers.
- Reporting duration is the cleanest comparison: a DMP is removed two to three years after the included debts are paid off, depending on the bureau; a proposal is removed three years after the included debts are paid off, or six years after signing, whichever comes first.
- Equity route: the creditors are paid in full, so no plan or proposal is added to your credit history. Existing missed payments and collections stay where they are.
- ⚠ It also converts unsecured debt into debt secured against your house. That is the trade, and it is not a small one.
- A DMP needs enough income to clear the whole balance in about five years. That is what rules most people out of it.
- CreditReboot will tell you within a day whether your equity covers it — and if it does not, which of the other two to ring.
What each one really costs you
A debt management plan runs through a credit counselling agency. They approach your unsecured creditors, ask that interest be reduced or stopped and the repayment period extended, and you make one monthly payment that the agency distributes. You repay the principal in full. It is an informal arrangement, and it generally covers credit cards, unsecured personal loans and unsecured lines of credit — not secured debts such as your mortgage or a vehicle loan.
On your credit history, a DMP is reported while you are repaying it, and the DMP information is removed two to three years after the included debts are paid off — the two bureaus apply different periods. How each individual account is rated during the plan can vary by creditor and by bureau — ask the agency what your specific creditors will report before you sign.
A consumer proposal can only be filed and administered by a Licensed Insolvency Trustee. It is a formal offer to repay your creditors on altered terms, typically over no more than five years, and it is the only one of these three routes that can legally leave you repaying less principal than you borrowed. Once accepted it binds the creditors it covers. You pay for that with a longer mark on your credit file, and with control — the trustee administers the process.
The equity route borrows against the house and pays the unsecured balances to zero. Nothing is forgiven; you repay all of it plus interest and fees. What you avoid is adding a debt management plan or a consumer proposal to your credit history. What you do not avoid is your existing history — missed payments, high balances and collections already on file stay on file and age off on their own schedule. Paying the balances down does tend to help over time, because your reported utilisation drops and the accounts report as current, but nothing about a second mortgage wipes the past clean.
The biggest legal difference: a DMP does not bind your creditors
This is the distinction most comparison articles skip, and on some files it decides the whole question.
A debt management plan is voluntary. Your creditors do not have to participate. One can decline, keep charging interest, keep calling, and still sue. If a single large creditor sits it out, the plan can stop working before it starts.
A consumer proposal is a formal process. Creditors are given 45 days to respond, and if creditors representing at least 25% of proven claims do not request a meeting, the proposal can be accepted without one. Once accepted, it binds the creditors it covers — including the one that would have refused a DMP.
So if you have one aggressive creditor already threatening enforcement, that alone can be the reason a proposal is the right route and a DMP is not. Worth raising in your first conversation with either.
Four routes, side by side
| Debt management plan | Consumer proposal | Use your equity | Do nothing | |
|---|---|---|---|---|
| You repay | 100% of principal, interest reduced or stopped | Potentially less than you owe | 100% plus interest and fees | Several times what you owe |
| Credit reporting | Reported while repaying; removed 2–3 years after debts paid off, depending on the bureau | Removed 3 years after debts paid off, or 6 years after signing, whichever is first | Nothing added; existing history remains | Worsens; collections stay 6 years |
| Who runs it | A counselling agency | A Licensed Insolvency Trustee | You do | Your creditors do |
| Binds creditors? | No — participation is voluntary | Yes, once accepted | Not needed — they are paid out | No |
| Covers | Unsecured debt only — not mortgages or car loans | Unsecured debt; secured debt handled separately | Whatever the advance is large enough to pay out | — |
| Needs | Income to clear the full balance in about 5 years, and creditors willing to take part | Creditor acceptance | Usable equity, income to carry the payment, and an exit plan | Nothing |
| Main risk | A creditor refuses and keeps enforcing | Longer credit reporting; less borrowing capacity meanwhile | The debt is now secured on your home | Judgment, garnishment, enforcement |
Before you pick a column, run your figures through the credit card vs home equity loan calculator. It shows what your cards cost each month against what the same balance costs secured against the house — which is the number most people are missing when they make this decision.
The part nobody says out loud: you are putting the debt on your house
Unsecured debt is unpleasant. A creditor can sue, obtain judgment and garnish wages, but a credit card is not registered against your home.
The moment you consolidate into a mortgage, that changes. The debt is secured by the property, and if the payment is not made, the lender’s remedy runs against the house. That is the honest cost of the equity route, and it is the reason we turn files away when the payment does not fit the household budget.
It is a good trade when the payment is comfortably affordable, the borrowing cost is materially below what the cards are charging, and there is a plan to get out of it. It is a bad trade when it is being used to buy a few quiet months.
A worked example: $58,000 unsecured, a home in Alberta
Illustrative only
Home value: $540,000 — first mortgage: $290,000 — equity: $250,000
Unsecured debt: $58,000 across cards and a line of credit, averaging 22%
Do nothing: minimums of about $1,450 a month, of which roughly $1,060 is interest. The balance barely moves.
Debt management plan: $58,000 over 60 months is about $967 a month before any agency fees, every month, and at the end the debt is gone. It needs every significant creditor to take part.
Consumer proposal: a trustee would calculate what could realistically be offered based on the whole financial picture. With $250,000 of equity sitting on title, do not assume $58,000 of unsecured debt can simply be halved — equity is part of what creditors are assessing. Get an actual figure from an LIT before you compare payments.
Equity route: a second mortgage of $63,000 clears the $58,000 and covers a 2% lender fee, a 2% broker fee, about $2,000 legal and a $450 appraisal. Total secured debt $353,000 on $540,000 — approximately 65% loan-to-value. At 11% interest-only that is $578 a month.
Why $578 is not “cheaper” than $967
This is where these comparisons usually go wrong, so here it is plainly. The $967 DMP payment repays principal. The $578 mortgage payment in that example is interest-only — the balance does not go down unless you pay it down.
| Over five years | Debt management plan | Second mortgage, interest-only | Second mortgage, paid down over 5 years |
|---|---|---|---|
| Monthly payment | ~$967 | ~$578 | ~$1,370 |
| Paid over the five years | ~$58,000 | ~$34,700, all interest | ~$82,200 |
| Still owed at the end | $0 | ~$63,000 | $0 |
Read that honestly. A debt management plan that genuinely stops the interest is hard to beat on total cost, because you are repaying principal at close to zero interest. The equity route does not win on total cost. It wins on three other things: it needs roughly $390 a month less in cash flow than the DMP, it does not depend on every creditor agreeing, and it adds neither a plan nor a proposal to your credit history.
Which of those matters most is a question about your situation, not about which product is better. If your income comfortably covers $967 a month and your creditors will co-operate, a DMP may well be the cheaper answer. If it does not, the equity route buys the breathing room — provided you have a plan for the balance.
If your figures resemble that box, the equity option is probably open and worth pricing. Send us the numbers and you will know within a day.
A second mortgage only works if there is an exit strategy
An interest-only second mortgage is bridge money. It is not a place to leave $63,000 indefinitely. Before we recommend one, we want to see how it ends. Usually that is one of:
- Refinance at your first mortgage renewal — roll both into a single mortgage once the credit file has had time to recover and the payment history is clean.
- Pay the principal down deliberately — treat the difference between the old minimums and the new payment as a repayment, not a raise.
- A dated income event — a return to work, a bonus, a business receivable, a property sale already in motion.
- A planned sale — if you were going to move anyway, the second mortgage simply gets paid out of the proceeds.
What we will not do is assume a future refinance will automatically be there. Property values move, lender appetite moves, income changes. If the only exit is “we will refinance in two years”, the plan needs a second option behind it.
Which reader each option suits
A debt management plan may make sense if you rent or have little usable equity, your income comfortably covers clearing the whole balance inside about five years, and your major creditors are likely to take part. It is the lightest-touch formal option and it comes off your credit history soonest.
A consumer proposal may make sense if the debt is beyond what your income or your property can support, if a creditor is already enforcing, or if the principal reduction is large enough to outweigh the longer credit reporting. Speak to a Licensed Insolvency Trustee — the initial assessment is generally free, and only an LIT can file one. A trustee is required to review your options with you, so ask about all of them, including whether your equity changes the picture.
Home-equity consolidation may make sense if you own a home, the mortgage plus the debt plus roughly 5% to 7% in costs still sits comfortably inside what lenders will advance against the property, your income carries the payment without strain, and you have a realistic exit.
Where credit is already bruised, that normally means a second mortgage behind your existing first at 8%–15%, or a full refinance if the file supports it. See debt consolidation for homeowners and home equity loans for the structures, and mortgages with bad credit if your score has already slipped.
Alternative and private lenders tend to place more weight on the property, the available equity and whether the plan makes sense than a bank would — while still looking at income, credit history, location and how the loan gets repaid. Timelines vary with the appraisal, lender conditions and legal work; some equity-lender files can close within days once those are complete, while a credit union or B-lender file more typically runs a few weeks.
When we tell people to go elsewhere
We place mortgages, and we still say no regularly. Most conventional home-equity consolidation is limited to roughly 80% of the home’s appraised value, though lender and product rules vary — and if your mortgage plus the new borrowing would push past what the property realistically supports, there is nothing to arrange at any tier. If the household cannot carry the payment, consolidating relocates the crisis and puts the house inside it. And if the unsecured debt dwarfs the equity, borrowing spends the equity and leaves you with the debt anyway.
In any of those cases, ring a counselling agency or a trustee. A straight answer in week one is worth more than a hopeful one.
Where we work. The worked example above is an Alberta file. See our Alberta mortgage broker page, the Saskatchewan page, or all areas we serve.
Get the third number before you decide
Send your address, mortgage balance and total unsecured debt. We will tell you whether the equity route works, what it would cost each month, and if it does not work we will say which of the other options to pursue.
Credit counselling vs consumer proposal FAQ
Is credit counselling better than a consumer proposal?
They solve different problems. A debt management plan repays 100% of the principal and comes off your credit history soonest — two to three years after the included debts are paid off, depending on the bureau. A consumer proposal can reduce what you repay but stays on file longer, and it is the only one of the two that binds creditors who would otherwise refuse. If your income cannot clear the full balance in about five years, or a major creditor will not participate, the DMP is not really on the table.
Does a debt management plan hurt my credit score?
It is reported on your credit history while you repay it, and the DMP information is removed two to three years after the included debts are paid off, depending on the bureau. How individual accounts are rated during the plan can vary by creditor and bureau, so ask the agency what your specific creditors will report before you commit. You can see what paying balances down does to your reported utilisation with the credit utilization calculator.
How long does a consumer proposal stay on my credit report?
Three years after the included debts are paid off, or six years after you sign, whichever comes first. For a five-year proposal that usually means about six years from filing.
Can creditors refuse a debt management plan?
Yes. Participation is voluntary, so a creditor can decline, keep charging interest, keep collecting and still sue. A consumer proposal is different — creditors have 45 days to respond and once it is accepted it binds them. That difference matters most where one large creditor is already aggressive.
Can I use home equity instead of either one?
Often, yes — if the existing mortgage, the unsecured debt and roughly 5% to 7% in financing costs still sit comfortably inside what a lender will advance against your property, and your income carries the payment. Most home-equity consolidation is limited to around 80% of appraised value, though rules vary by lender and product, and a standalone line of credit usually has a lower limit again. Remember that this moves the debt onto the house.
Which option could require me to repay the least principal?
A consumer proposal is the only one of the three that can legally let you repay less than the full unsecured debt. A debt management plan generally requires repaying it all, and home-equity consolidation pays the creditors in full and moves the balance into secured financing. What it actually costs you overall depends on the proposal terms, the interest and fees, and how long the home-equity debt stays outstanding.
Do I have to choose today?
No, but choose within a fortnight. Book the free assessment with a trustee, speak to a counselling agency, and get your equity numbers run. Three answers side by side make the decision obvious — and interest accrues while you deliberate.
CreditReboot is a licensed mortgage brokerage, not a Licensed Insolvency Trustee. Only an LIT can file a consumer proposal or bankruptcy. This article is general information, not insolvency advice.
Rates and fee ranges were verified on 19 August 2026 and change frequently. The worked example is illustrative, not an offer.
