Consumer Proposal or Debt Consolidation
What you are comparing are the choices between settling your credit card debt with a consumer proposal or consolidating your existing debts with a secured debt consolidation loan. Which option is better depends on several factors including:
- whether or not you are insolvent,
- the cost of the second mortgage,
- and the cost of a consumer proposal.
To be eligible to file a consumer proposal you must be insolvent, meaning that you owe more than you own and you cannot pay your debts as they come due. If your second mortgage will use up all of the equity in your home and you have other debts left over you are probably insolvent.
A 2nd mortgage on your home can be a viable option if the interest rate you pay on the new debt is lower than your old debt. Unfortunately in the case of a debt consolidation loan you are often swapping one form of debt for another and not necessarily improving your situation. The test may be is your second mortgage bring you up to 75% or 100% of your home value. For more information read our article on turning unsecured debt into secured debt.
Our debt options calculator can give you a rough idea of the cost of the consumer proposal, and your lender can tell you what a second mortgage would cost. You can compare the two options and decide which option is best for you.
If you have substantial equity, and can qualify for a second mortgage, that may be your best option. If however you don’t have much equity (remember real estate fees, legal costs and other closing costs reduce the value of the equity in your home), and you can’t afford the mortgage payments, a consumer proposal may be the best option. A trustee can provide you with a no charge initial consultation to explain the costs of the consumer proposal in more detail.