by | Jul 8, 2024 | Precious Metals

Last Updated: July 8, 2024

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When credit issues become insurmountable, and no matter how hard you try, you can’t seem to dig yourself out of debt, there are three potential pathways to fix the problem.

Should you choose debt consolidation, debt settlement, or a consumer proposal?

What Is Debt Consolidation?

Like piecing together a puzzle, debt consolidation involves combining a large number of small loans into one large loan. Typically, you borrow the desired amount with a personal loan and use the proceeds to pay off your creditors. The benefits of debt consolidation include:

  • Manage a single loan versus multiple credit accounts
  • Reduce the risk of late payments, which can improve your credit score
  • A lower interest rate may help you pay off the balance faster
  • The relief may reduce stress and improve your mental health

What Is Debt Settlement?

With debt settlement, a company negotiates on your behalf to extinguish your outstanding debts. For example, the debt settlement firm will contact your creditors and negotiate a repayment percentage, which is typically 40% to 90% of the total balance.

If the creditors agree, you transfer the funds to the debt settlement firm and it disburses the money on your behalf. Please note that debt settlement companies charge fees for the service, and they may still apply even if your creditors reject the proposal.

Best practices when choosing a debt settlement company include:

  • Check the Better Business Bureau (BBB) and other rating agencies to ensure the company has a good reputation
  • Thoroughly review the agreement and ask questions if anything seems unclear
  • Shop around to ensure that service fees are appropriate
  • Ask for clarification of policies and promises in writing to ensure there is a written record

For more information, The Consumer Financial Protection Bureau (CFPB) has helpful tips on working with debt settlement companies.

What Is a Consumer Proposal?

A consumer proposal elicits the help of a Licensed Insolvency Trustee (LIT), who negotiates with creditors on your behalf and helps you avoid bankruptcy. Important eligibility requirements include:

  • Unsecured debts of $250,000 or less (excluding the mortgage on your primary residence)
  • Repayment terms can’t exceed five years

Qualifying debt includes credit card balances, personal loans, lines of credit, debt consolidation loans, payday and unsecured installment loans, and student loans (assuming you were a student within the last seven years). Moreover, the benefits of filing a consumer proposal are as follows:

  • Unsecured creditors will no longer call for collections
  • Interest charges stop on the debt balance
  • The negotiated settlement is less than you owe
  • You repay the funds with fixed monthly installments that won’t increase
  • You have access to budgeting and counseling services
  • A consumer proposal stays on your credit report for three years versus six years with an initial bankruptcy
  • You keep more assets with a consumer proposal compared to a bankruptcy

For more information, please see our partner site’s Consumer Proposal Guide.

Which Debt Relief Path Is Right For Me?

If the breadth of information above seems overwhelming, it may be difficult to decide between debt consolidation, debt settlement, or a consumer proposal. On the one hand, you can shoulder the burden on your own, or you can seek assistance. Our advice is to start with the latter.

1. Consult With a Debt-Relief Specialist

The first step in choosing the right path to solvency is to seek professional help. Searching the internet generates ideas and guides you in the right direction. However, you should seek assistance from an experienced professional.

One that may fit your needs is California-based Oak View Law Group. The firm has helped more than 6,700 clients become debt-free and has experts with experience across 15 segments of consumer law. The service also includes a “No-Questions-Asked Refund Policy” and Oak View Law Group often settles debts at 40% to 60% of the outstanding balance. To learn more, please consult our partner site’s Oak View Law Group Review.

2. Determine Your Ability to Pay and Credit Score Priorities

Because the goal is to pay off your debts and preserve your credit score, a professional may advise starting with debt consolidation.  If you opt for debt settlement or a consumer proposal, both strategies hurt your credit score because the final settlement writes off a portion of the debt. And because you’re not paying off the balance in full, the activity goes on your credit report.

Conversely, with debt consolidation, you take out a new loan and use the proceeds to pay off your old loans, which means creditors are repaid in full. The only downside is that the consolidation lender may do a hard credit pull which provides a small hit to your credit score.

Equifax notes that “High credit scores mean you’ll be more likely to qualify for a loan with favorable terms for debt consolidation. Generally, borrowers with scores of 740 or higher will receive the best interest rates, followed by those in the 739 to 670 range. If your credit score is lower than 670, debt consolidation may not be a good option for you.”

In a nutshell: if you already have a mid-to-low credit score, the interest rate on the consolidation loan may be just as high as your current debt. The U.S. Average Credit Card Interest Rate has soared above 21%, so if you’re consolidating credit card debt, the strategy only works if your personal loan interest rate is less than your credit card interest rate.

3. Determine the Preferred Debt-Relief Timeline

Because you only repay a percentage of the outstanding balance with debt settlement and consumer proposals, it’s often faster to extinguish your debts. If the goal is to become debt-free as quickly as possible, debt settlement and consumer proposals may be preferable.


If debt woes are keeping you up at night, there are reliable solutions, and you don’t need to embark on the journey alone. Licensed professionals have decades of experience and have helped individuals suffering from the same hardships. Moreover, the education, guidance, and mentorship received during the process can help you make smarter financial decisions in the future.

As a result, whether it’s debt consolidation, debt settlement, or a consumer proposal, brainstorming with a professional is the best way to come up with the right solution.

Alex Demolitor