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Debt consolidation loan: how it works
You borrow a single loan to pay off multiple debts, leaving one fixed monthly payment — ideally at a lower interest rate. You stay in control, deal directly with the lender, and your accounts remain open. It works best when you have decent credit and steady income.
Credit counselling (Debt Management Plan): how it works
A non-profit credit counselling agency negotiates with your creditors to reduce or eliminate interest, then combines your debts into one monthly payment made to the agency, which distributes it to creditors. You don’t borrow new money. It can help even if your credit is poor, but accounts are typically closed during the plan.
Side-by-side comparison
- New borrowing? Loan = yes · Counselling = no
- Credit needed? Loan = decent credit helps · Counselling = no minimum
- Interest: Loan = depends on your rate · Counselling = often reduced or waived
- Accounts: Loan = stay open · Counselling = usually closed
- Credit impact: Loan = neutral-to-positive with on-time payments · Counselling = noted on your report during the plan
- Best for: Loan = good credit, manageable debt · Counselling = high-interest debt, weaker credit
Which should you choose?
Choose a consolidation loan if you have good credit, want to keep control, and can secure a rate lower than your current debts. Choose credit counselling if your credit is weak, your interest charges are crushing, or you’d benefit from structured help and creditor negotiation.
What about more serious debt?
If neither option makes your payments affordable, a consumer proposal or other insolvency solution — handled by a Licensed Insolvency Trustee — may provide deeper relief. A free consultation can clarify your best path.
Frequently asked questions
Does credit counselling hurt my credit more than a loan? A Debt Management Plan is noted on your report, but the impact is often less damaging than missed payments or a proposal.
Is credit counselling free? Non-profit agencies offer free consultations; DMPs may have a small administrative fee.
Can I switch later? Yes — your situation can change, and you can move between options as needed.
Compare your debt-relief options. See consolidation loan offers →
Disclaimer: LoanWave.ca is an affiliate / comparison website. We are not a lender or counselling agency and do not provide loans. We may earn a commission from partners. Informational content only, not financial advice.