Other Debt Solutions

Other Debt Solutions You May Want to Consider

As you look for a solution to get out of debt, it’s important to consider all your options. Consumer proposals and bankruptcy are only two of the options that can provide relief. As a Licensed Insolvency Trustee, Melanie Leigh wants to ensure you understand all the other options available, so you can make the most informed decision possible.

This guide can help you understand alternatives to bankruptcy and consumer proposals. If you have questions or want to get a free assessment to find the best way out of debt in your situation, call Melanie at (780) 784-8638

Debt consolidation

Debt consolidation is typically not going to be a viable solution if you’re already considering filing a consumer proposal or bankruptcy. But in case you haven’t explored it, here is what you should know.

Debt consolidation can be beneficial if your main issues with debt are too many payments and high-interest charges. If you are juggling bills and can’t make progress paying down high-interest debts such as credit cards, then you may be able to consolidate to solve those issues. This solution is most effective if you’ve managed to maintain your credit score during your financial hardship.

With this type of debt relief, you take out a personal loan or Line of Credit (LOC). You use funds from the loan or LOC to pay off your existing debts. This eliminates all those bills you may be juggling. With the other accounts paid off, you would only have the loan or LOC to repay.

The reason you need good credit to make this option work is that you need to qualify for the lowest interest rate possible. This allows you to focus on repaying the debt you owe, rather than spending so much money paying off accrued monthly interest charges.

With good credit and the right consolidation lending option, you can get out of debt in 1-5 years. In some cases, your monthly payment may be lower than the total monthly payment you are paying on all your debts individually.


This solution can be beneficial because it consolidates your debt into one monthly payment. You stop juggling bills and trying to keep up with due dates.

In addition, when done correctly, this debt solution will not damage your credit. You should see your credit score improve over time.


The biggest risk that comes with debt consolidation is that you can run up new balances once your existing balances are paid off. Using debt consolidation will not close your other accounts. The balances will drop to zero. So, there’s a risk that you can run up new balances in their place.

If you plan to consolidate debt, make sure you have a stable budget. You need to be able to avoid making new charges while you pay your existing debt off. Otherwise, you can end up with more debt instead of less.

Get a Free Debt Assessment to find the best way to become debt-free

Home equity borrowing

Another debt relief solution that’s available to homeowners is to borrow against the equity in your home. Equity is the value you have in your home, minus the remaining balance on your mortgage. Depending on how long you have owned your home and how home prices have increased where you live, you may have significant equity built up that you can use to your advantage.

This works similarly to debt consolidation because it will reduce the number of bills you need to worry about. You get a Home Equity Line of Credit (HELOC) or home equity loan. Then you use the funds to pay off your other debts. This leaves only the HELOC or home equity loan, as well as your mortgage, to repay.

Another option that uses home equity is to refinance your primary mortgage and cash out some of the equity available. You then use that equity to pay off your debt. In this case, the refinanced mortgage will pay off your existing mortgage, meaning you will only have one mortgage payment to worry about.

If you are financially unstable and facing serious challenges with debt, however, borrowing against home equity can be very risky. It also may put you in a worse financial position than these solutions. For example, if you file bankruptcy, your home equity would qualify for an exemption up to a certain value. It doesn’t make sense to borrow against that equity that would have been exempted in bankruptcy to pay off your debt.


A big advantage with borrowing against equity is that you can enjoy low-interest rates even with a weaker credit profile. Since these borrowing options are secured using your home as collateral, you can often enjoy a lower interest rate than you would get with an unsecured debt consolidation loan or LOC.

While the cost savings can be great with home equity borrowing options, the risks can be even greater. If you cannot keep up with the payments on a first or second mortgage product, you could be at risk of foreclosure.

So, even more so than with debt consolidation, you need to make sure that you will be financially stable if you decide to borrow against your home. You need to have a balanced budget with room to save money for emergencies. You should be able to comfortably afford all your expenses without relying on credit cards.

Otherwise, borrowing against equity can be risky. You don’t want to lose your home to foreclosure because you wanted to pay off some other debt.

Credit counselling

If you don’t have the credit or the means to borrow your way out of the debt problems you’re facing, then another option may be credit counselling.

With the help of a credit counsellor, you set up a debt management plan. This is basically a professionally supported repayment plan that helps minimize interest. You still owe your original creditors, but they agree to accept payments on an adjusted schedule through the credit counselling agency.

Your creditors also agree to reduce or eliminate the interest rates applied to your balances. Since you are working with a credit counselling service, often creditors will agree to drop your rates to zero, allowing you to pay off your balance interest-free.

With a debt management plan, you will repay all the principal debt owed. You pay off your balances in full, but you minimize interest and get a monthly payment that works for your budget. The plan can take up to 60 months, so it’s similar in time to a consumer proposal.

The credit damage is also similar. A debt management plan will result in the same credit penalties as you see with a consumer proposal. The difference is how long those penalties remain on your credit. With a debt management plan, the penalties remain for two years from the date you complete the program. With a consumer proposal, it’s three years.


The biggest benefit of credit counselling is that it allows you to reduce or eliminate interest, regardless of your credit score. You can have bad credit and creditors will still agree to cut the interest applied to your balance.

It also offers the benefit that you can pick and choose which debts you want to include. Unlike a consumer proposal or the OPD we describe below, you are not legally required to include all your debts. So, if you want to leave a credit card out of the program, you can do so.


A big downside of enrolling in a debt management plan is that it does not offer the protection from collection actions that you get with a consumer proposal, bankruptcy, or OPD. There is no Stay or Proceedings to stop collection actions, such as wage garnishment.

In addition, creditors are also not required to accept the agreement. With a consumer proposal, creditors must adhere to the agreement as long as it receives approval by a dollar-majority of your creditors. So, even the creditors that don’t agree to it must follow it. But with a debt management plan, creditors can decide individually if they want to participate, so not all of your creditors may agree.

Another downside is that it will still negatively impact your credit. It will also close the credit cards that you enroll in the program. These are the same types of downsides that you see with a consumer proposal, but the difference is that you repay all the debt you owe instead of repaying just some of it.

Orderly Payment of Debts (OPD)

This option for debt relief is an alternative program outlined in the Bankruptcy and Insolvency Act that is available to residents in Alberta. It is administered by local credit counselling agencies in Alberta.

With an OPD, most of your unsecured debts are consolidated into a monthly repayment plan. All interest rates on those debts are capped at 5 percent. You make one payment each month to the credit counselling agency and they distribute those payments to your creditors on a set repayment schedule.

An OPD pays off all your debt in full in 60 months or less. As with a debt management plan, an OPD will be noted on your credit for three years from the date you complete the program.


Since Orderly Payment of Debts is a right guaranteed by the Bankruptcy and Insolvency Act, it offers many of the same benefits you enjoy with a consumer proposal. It creates a legally binding agreement between you and your creditors. It also offers the Stay of Proceedings on collection actions, including wage garnishment.


Unlike a debt management plan, OPD requires you to report and include all eligible unsecured debts. You are not permitted to leave credit cards or other debts out. This can be a big disadvantage if you have credit accounts in good standing that you wish to maintain.

The repayment period can also be limiting. If you have a high level of unsecured debt, you simply may not have the budget to meet a 5-year repayment schedule. And even so, you will still face some credit damage for not following your original payment schedules with your creditors.

Finding the best debt solution for you

Choosing the right debt solution isn’t always easy, especially given that most people don’t hear about some of these options until they need them. That can make for a steep learning curve at a time when you need decisive action.

The good news is that you don’t need to make this decision alone. You can consult with a Licensed Insolvency Trustee like Melanie Leigh for free. She can help you review your finances and your options for relief. Together, you can find the best solution for your needs.

Call (780) 784-8638 to request a consultation from Melanie so you can get a free debt assessment.