Pembroke, Ontario

Debt Management Plans


Many companies that offer debt solutions use creative or different names for the solutions they offer and differentiate themselves and their services. The truth is, many of these solutions (e.g. a “debt management plan” or “debt management program”) are usually very similar, if not the same, and can be referred to as an informal proposal to creditors.

A debt management plan, debt management program, or an informal proposal to creditors is a voluntary agreement between you and your creditors to reduce your payments. Typically, you would sign a contract with a credit counsellor or debt consultant who then negotiates with creditors on your behalf to lower interest and fees, and sometimes to secure more time for you to repay your debts.

Once you sign the contract, instead of paying your creditors, you would make one monthly payment to the counsellor at an agreed rate of interest. This interest rate is usually lower than the rate you would be typically paying to your creditors. The credit counsellor or debt consultant pools your various debts into a single monthly payment with a lower interest rate and then pays it on your behalf to participating creditors until all of your debts are paid.

Generally, debt management programs only include unsecured debts, such as credit card balances and lines of credit. Secured debts, like mortgages and car loans, are not usually included because secured creditors can repossess your car or home if you do not make the necessary payments.

While creditors have no obligation to agree to an informal proposal, debt management plan, or debt management program, they often will participate to increase their chances of being paid. In fact, many financial institutions make financial contributions to the provider of these plans as a “donation.”

What you should know

There are several factors you should consider with regards to participating in a debt management plan:

  • Fees for such plans are not regulated and can vary a great deal
  • Many for-profit and non-profit counselling agencies charge a set-up fee and monthly maintenance fees for debt management programs
  • Some debt consultants may charge application and membership fees
  • Be sure to find out exactly what you must pay, and how long the repayment period will be, before signing a contract
  • Creditors may inform the credit reporting agencies that you are participating in this kind of program and the agencies may subsequently adjust your credit rating to an R7 (making regular payments through a special arrangement to settle your debts) until debt repayments have been completed

Informal vs. formal consumer proposals

There are many similarities and differences between making an informal arrangement with your creditors, such as a debt management plan or debt management program, and a formal consumer proposal, which can only be conducted by a qualified administrator or Trustee – like at BDO in Pembroke.

To learn about the differences between an informal proposal to creditors and a formal BDO consumer proposal, click here.