Debt Relief Programs Compared
Discover how 5 credit card debt relief programs stack up.
When consumers can’t effectively pay off debt on their own, relief programs offer different ways to eliminate it. Debt relief refers to any solution that makes it easier to get out of debt. When do-it-yourself options can’t or won’t work for you, there are five programs that you can use to get professional support. Finding the best option depends on your financial solution.
Debt relief programs in Canada
There are government relief programs. Another is provided by non-profit charitable organizations and the last is provided by private companies.
Government debt relief programs
There are three debt relief programs that are outlined in the Bankruptcy and Insolvency Act. Bankruptcy and consumer proposals are both overseen by Insolvency Trustees, who are licensed by the province or territory where you live. These solutions allow you to get out of debt for a percentage of what you owe.
In Alberta, Nova Scotia, Saskatchewan, and PEI, there is an additional program called Orderly Payment of Debt. It allows you to pay back your debt on a consolidation plan at a set interest rate.
A consumer proposal is a relief program administered by a Licensed Insolvency Trustee (LIT). The trustee evaluates your finances, including your liabilities, assets, income, and expenses. If they determine that you can afford to pay back at least some of what you owe, more than what a creditor may receive in a bankruptcy, they will recommend a consumer proposal.
The LIT then determines the monthly payment that you can afford and you propose a formal agreement with your creditors. If accepted, you make payments up to 60 payments and then the remaining balances are discharged.
A consumer proposal is noted on your credit report for three years from the date of final discharge.
This solution is also administered by a Licensed Insolvency Trustee (LIT). During the trustee’s financial evaluation, it can be determined that a consumer is insolvent. In this case, the LIT will recommend bankruptcy.
The trustee oversees the sale of any non-exempt assets and the proceeds go to pay off the consumer’s creditors. Any remaining balances are then discharged.
A first bankruptcy is noted on your credit report for six years from the date of final discharge
Orderly Payment of Debts (OPD)
An Orderly Payment of Debt program is also known as a consolidation order and is available to residents in Alberta, Nova Scotia, Saskatchewan, and PEI. Quebec has a similar program known as a voluntary deposit.
A provincial credit counsellor arranges a consolidation plan to pay back your unsecured debt within three years. The interest rate is capped at 5%.
An OPD is noted in your credit report for two years from the date you complete the program.
Using a non-profit debt relief program
Many credit counselling services are non-profit organizations that help consumers address challenges with debt. They provide free debt and budget evaluations to consumers. This gives you an opportunity to discuss options for getting out of debt with a trained professional.
If you and the credit counsellor determine that you will need help to get out of debt, they may recommend a debt management program. This is similar to the Orderly Payment of Debt (OPD) program, in that you consolidate and pay back your unsecured debt.
In this case, the program pays off your debt in 60 payments or less. The credit counselling team works with your creditors to reduce or eliminate interest charges; in many cases, the APR drops to 0% so you can pay off the balance interest-free.
This program also results in a credit report notation that remains for two years from the date you complete the program.
Finding relief with a private debt settlement company
There is one final program that offers debt relief, but it is the least assured to work and the least regulated. You can enroll in a debt settlement program through a private, for-profit company.
Debt settlement allows you to get out of debt for less than you owe, similar to a consumer proposal. However, unlike a proposal there is no formal agreement between you and your creditors, Thus the results of a settlement program cannot be guaranteed.
The debt settlement company creates an account to collect funds that are used to make settlement offers to your creditors. Many companies charge upfront fees and some may even advise you to stop paying your creditors to generate funds faster. This leads to more credit damage and increases your risk of facing collection actions.
Once there are enough funds in your account, the company reaches out to your creditors to make settlement offers. They offer a percentage of what you owe. If a creditor agrees, the funds are withdrawn from the account and the remaining balance is discharged.
Each debt settled will result in a negative credit report notation that remains on your report for six years from the date of final discharge.
|Debt Management Program||Orderly Payment of Debt (OPD)||Debt Settlement||Consumer Proposal||Bankruptcy|
|Type of program||Non-profit||Government||Private||Government||Government|
|Administered by||Non-profit credit counselling organization||Provincial credit counsellor||For-profit debt settlement company||Licensed Insolvency Trustee||Licensed Insolvency Trustee|
|Best for||Consumers who can afford to repay their unsecured debt in full at reduced interest||Consumers in Alberta, Nova Scotia, Saskatchewan, and PEI, who can afford to repay their debt in full||Consumers with debts already in collections or a consumer that has a lump-sum of cash available||Consumers who owe up to $250,000 in non-mortgage debt, who can afford to repay a portion of what they owe||Consumers who are insolvent, meaning they cannot afford to repay even a portion of what they owe|
|Payments||Based on your budget and total unsecured amount owe||Based on your budget and total unsecured amount owe||Payments made into an account to generate lump-sum settlement amounts||Set by trustee and based upon an evaluation of your income and expenses||Base contribution cost of $200 to pay trustee and administrative fees; higher costs if you have surplus income|
|Repayment period||Up to 60 payments (5 years) maximum||Up to 36 payments (3 years)||12-48 payments, on average||Up to 60 payments (5 years) maximum||9 months for a first-filing, unless you have surplus income; in this case, it is 21 months|
|Interest rate||Reduced or eliminated||Capped at 5%||n/a||n/a||n/a|
|Fees||Low setup and monthly administration fees, set based on your budget, number of accounts and total amount owed||No fees||Percentage of original balance owed to each creditor; may pay fees upfront with no money-back guarantee||$1,500 filing fee plus 20% of your future payments||$1,800 base contribution cost plus additional costs if you exceed the surplus income limit|
|Credit report penalty||R7 for 2 years from the date you complete the program||R7 for 2 years from the date you complete the program||R9 for six years from the date of final discharge||R7 for three years from the date of final discharge||R9 for six years from the date of final discharge (first bankruptcy)|
|Monthly income /financial review||No||No||No||No||Yes|
Discuss options for debt relief with a trained credit counsellor.