One of the biggest challenges people face when they find themselves in debt is not knowing what debt options exist to solve the problem. Sands & Associates Vice-President and Licensed Insolvency Trustee Blair Mantin recently joined Global News BC and shared some common debt solutions that British Columbians wondering how to get out of debt can consider.
Watch the clip, and read on below for more debt solution information:
If you or someone you know is trying to deal with having too much debt, here are 5 common debt management solutions:
1. Do Nothing:
It might not seem like an actual debt solution, but for some people, the best course may be to take no action on their debts!
- It’s important to understand what common creditors can and can’t do to collect from you – unless they successfully take you to court (which is rare) there is little that collectors can do to force you to pay off debt.
- For example, if you are a senior citizen on a fixed income, or in a very dire situation, sometimes the solution is to ‘do nothing’ about your debts until you reach a point where you are financially stable enough to tackle the problem head on.
- It is always a good idea to get advice/guidance from a professional – your creditors may threaten many things; you need to be able to sort out fact from fiction!
2. Consolidate your Debts:
Many people apply for a debt consolidation loan with their bank, if they find their debts are getting out of control. The theory is great – instead of many payments (often at high interest rates), how about one payment at a lower rate?
- The challenge with this debt solution is often two-fold:
- It’s often difficult to qualify for a debt consolidation loan if you don’t have assets that the bank can take security over (i.e. If you have a house with no mortgage, you’ll get a consolidation loan easily. If you have no assets, you’re very unlikely to be approved without a co-signer.)
- If you do manage to get a debt consolidation loan, it’s critical you take the old credit cards and stop using them! We see many clients who’ve successfully consolidated their debts, only to run up the balances again on the original credit cards because they did not address the underlying problem that caused the debt in the first place.
3. Sign up for Credit Counselling
Working with a Credit Counsellor (non-profit, or otherwise) can be a good option for people that have a few consumer debts (not government debt) and earn enough that they can pay off their debts in full if there is a break from the interest.
- Because Credit Counsellors may receive funding from your creditors, in support of their (even not-for-profit) activities, they are essentially working on the bank’s behalf to collect on the debt, although with a much more “friendly” approach to debt collection.
- Be aware that a Credit Counsellor cannot assist in any way with government debts;
- If you choose to work on a repayment plan, even though the debt is being repaid in full (less new interest), your credit rating will still take a hit;
- Even not-for-profit Credit Counsellors charge a fee – this is never a free service. In fact, there is no such thing as a free debt management service in Canada.
4. Make a Consumer Proposal
If you’re able to make some payment on your debt each month, but can’t repay the full amounts – a Consumer Proposal can be a great option to get out of debt.
- A Consumer Proposal is a legal agreement between you and your creditors that allows you to repay only a portion of your consolidated debts, in full-settlement.
- Interest and other charges automatically stop;
- It is not uncommon for debts to be reduced by 30-80% of the original balances.
- A Consumer Proposal is meant to be a ‘win-win’. The win to the person is avoiding bankruptcy and getting a hefty reduction on their debts; the win to the creditors is receiving a better overall recovery than if the person had filed for bankruptcy.
- You may be wondering – what is the probability that your debt settlement proposal would be accepted? The answer – almost always – more than 95% of Consumer Proposals are accepted by creditors.
- Only a Licensed Insolvency Trustee can help you file a Consumer Proposal.
5. File a Personal Bankruptcy
If your situation is such that you cannot afford to repay even a portion of your debts, personal bankruptcy may be a necessary step to become debt free.
- You do not need “permission” to file bankruptcy in Canada – you just need to owe more than $1,000 and legitimately not be able to pay those debts off.
- To go into bankruptcy is to get protection – all collection calls, lawsuits, wage seizures etc., must stop immediately upon the filing of the bankruptcy.
- The costs of a bankruptcy are 100% based on the person’s income – generally someone who is low-income makes a monthly payment of $150-200 and they are finished bankruptcy in 9 months.
- Though many people are scared of the credit rating impact of filing a bankruptcy, it’s actually common to re-establish credit within 2-3 years of a bankruptcy filing!
Every person’s situation is unique – to assess your specific needs and debt solutions, connect with a Licensed Insolvency Trustee. A detailed assessment is free, confidential and no commitment is required.
Book your free debt consultation and find out how you could become debt-free today!