Are you trying to figure out what to do about your debt, or looking for help deciding how best to pay off your debt? You are not alone! Read on to understand the different debt solutions you might consider to help you pay off your debt, and learn where BC consumers can safely get qualified support and resources for dealing with debt.
Strategies to Pay Off Debt
Debt payments can be a big demand on household income, and this is a key reason why paying off debt is a high-priority financial goal for many consumers. Everyone’s personal situation and needs are unique when it comes to ‘how best’ to deal with debt though, and it’s important to remember that the types of debt, balances, and personal circumstances you have will greatly impact the pros and cons of your options.
If you are looking for ways to pay off your debt, you might consider some of the following strategies.
Do-It-Yourself Debt Payment Plans: If you don’t have a lot of debt or other demands on your finances, you may be able to clear your debt with a self-directed plan and some careful budgeting.
- After listing all your debts, you may choose to prioritize paying off certain debts first based on factors such as debts with the highest interest rates, or debts with the lowest balances.
- You might also benefit from contacting your creditors to try to negotiate lower interest rates on your debts.
Keep in mind that if it would take you longer than five years to pay off your debt, you may find yourself paying a lot in interest over time – and if you don’t have enough money in your budget to accumulate savings at the same time you’re paying off your debt, you’ll be especially vulnerable to unplanned costs setting you back.
Refinancing Your Debt: You may be able to save some money on interest costs by combining eligible debt balances into a line of credit, consolidation loan or even a ‘balance transfer’ to a different credit card with a lower interest rate.
- This type of debt solution doesn’t come with any special benefit besides repaying your debt at a lower interest rate – you’ll still repay all your debts in full, with a bank collecting interest and other financing fees for lending you the money to pay off your other creditors.
- You’ll likely need to leverage equity in a major asset or rely on a relationship with a family member or friend willing to co-sign for you to use this type of solution, both of which can be highly risky.
If you’re already having trouble paying off your debt, solving a debt problem with more borrowing is often challenging – you may find yourself reaccumulating balances, or taking on new debts together. A ‘borrow-repay-borrow’ debt cycle can be nearly impossible to break if your debt payments require a considerable commitment of your monthly income.
Debt Repayment with a Credit Counselling Program: If you have only a few basic consumer debts with low balances, a debt repayment plan offered by a credit counsellor may allow you to repay your debts in full without ongoing interest charges.
- Credit counselling plans don’t cut balances, they just (usually) freeze future interest charges.
- Always confirm whether you have any debts that would need to be paid separately to the credit counselling payments.
- Any government creditors (such as Canada Revenue Agency for example) will not accept credit counselling program payments and will continue to charge interest and pursue you for payment.
- Make sure the amount you will save in interest costs is greater than the credit counsellor’s fees. Even non-profit credit counselling plans cost money!
Try the “Rule of 60” Math to estimate your potential debt payments:
- Add up then divide your total (non-mortgage) debts by 60. Is the resulting number something you could consistently afford as a monthly payment for the next 60 months (five years)?
- If not (or it’s doubtful), you might benefit most from a faster and more thorough debt solution that will allow you to cut your debt down to an amount you can afford to repay over a few years.
Solutions to Pay Off Your Debt Faster
When it comes to ways to reduce, settle, cancel or forgive your debts, there are a few potential options to do this, though it is very important to understand that in Canada the only way to safely, legally cut your debt is by working with a Licensed Insolvency Trustee.
- Licensed Insolvency Trustees are Canada’s only federally-regulated debt help professionals, specifically trained, and certified to provide consumers debt advice and debt management services.
Making a Consumer Proposal
(Only available through working with a Licensed Insolvency Trustee)
If your total (non-mortgage) debts are under $250,000, a Consumer Proposal could be an ideal choice to consolidate and cut your debt.
Unlike other consolidation options, you can deal with virtually all types of debt in a Consumer Proposal (everything from credit cards to payday loans, government tax debt to CERB overpayment, student loans and more), and you’ll offer to repay the portion you can afford over a period of up to five years. Your creditors will agree to forgive the unpaid balance.
Consumer Proposals are one of the most popular solutions offered by Licensed Insolvency Trustees and can provide you significant advantages in managing debt, including:
- Consolidated debts are frozen, and there are no added interest costs.
- Debts are often cut by up to 50-80%.
- Your credit history is not a qualifying factor.
- Your creditors will be bound by the accepted Consumer Proposal and cannot change their minds, nor pursue you for collections, wage garnishments, etc.
- You can pay off your Consumer Proposal early at any time without penalty.
- There are no added professional fees added in or on top of your debt payments.
- A Licensed Insolvency Trustee will work with you throughout the process, and handle communication with your creditors.
- A Consumer Proposal can ONLY be filed by working with a Licensed Insolvency Trustee. Don’t be fooled by ads for services that sound similar but are offered by a credit counsellor, debt consultant, or debt settlement agency.
Negotiating Debt Settlement
(May be able to do on your own, or with a debt consultant)
If you have cash on hand, you may try to negotiate with your creditors, offering them a lump sum of money to settle your debt for less than the total balance you owe. Some people also try to work with a debt consultant for this type of debt reduction service.
- Extreme caution should be used with any debt settlement company. Not only will you be charged fees for these services (or even unnecessary services or referrals), but some also employ high-pressure sales tactics, make unrealistic promises, and encourage strategies that can aggravate your situation with your creditors.
- For example: You might be told to stop making your debt payments so you can instead save up money to accumulate a lump sum settlement to be offered to your creditors. In the meantime, you have no protection from creditors, who might start collection or legal action against you due to their debts going unpaid.
- Review any contracts or agreements carefully before signing, and never send money before researching the company.
Filing for Bankruptcy
(Must be administered by a Licensed Insolvency Trustee)
If your situation is such that you have very minimal income, or other extenuating circumstances that make any sort of debt repayment a hardship, you may want to explore whether bankruptcy could be the best option to forgive your total debts.
Although many people are anxious about the idea of declaring bankruptcy, or fearful they will not be able to recover financially, the reality is that personal bankruptcy is a relatively straightforward and private legal process that offers debt relief and a financial fresh start.
- Filing bankruptcy will immediately trigger a freeze for your creditors and in as little as nine months you can be discharged (released) from bankruptcy with all your debts forgiven, allowing you to move forward with your life.
A Licensed Insolvency Trustee is your best resource for dealing with debt and will help you evaluate all your options and how they might work for you and your situation. It’s important that you have opportunity and support to make a fully informed decision about how you want to move forward.
Getting Debt Advice
Most people don’t know what resources they have available for support in managing their debt, and this often means people have a series of trials and errors before a debt repayment plan that gives them good results. Unfortunately, these false starts or unsuccessful attempts to manage debt can be not only discouraging, but also come at a cost to finances, time, and personal wellbeing.
If you’re dealing with anything debt-related, a Licensed Insolvency Trustee is the most appropriate resource to seek out and should be your first contact.
You don’t have to navigate the complexities of managing debt alone or pay money to get complete information and qualified advice from an expert. In an hour’s free consultation a Licensed Insolvency Trustee can help you fully understand your situation and all your options.
Should I Get Professional Debt Help?
If you feel like you might have a debt problem – you’re probably right! It’s best to connect with a Licensed Insolvency Trustee as early as possible, doing so can save you a lot of frustration (and money). Although we do help people facing urgent situations such as wage garnishments and legal action, we also offer professional advice, guidance – and debt-free plans – to people who feel stuck in a debt cycle, or may be facing debt warning signs such as these:
- Struggling to pay your debt off even though you make regular payments.
- Continually relying on your credit to meet costs of living and financial commitments.
- A debt repayment plan that’s going to take longer than five years.
- Feeling generally stressed, anxious or worried about your debt.
Every consumer should know that they have the right to connect directly with a local Licensed Insolvency Trustee in their province:
- You do not need a referral to speak with a Licensed Insolvency Trustee, and BC residents can book a free, confidential consultation with a local Sands & Associates Licensed Insolvency Trustee.
- All our services are available in person, over the phone, or online.
- You are under no obligation to continue working together, and there is no impact to your credit history, and no hidden fees.
Get non-judgmental advice on dealing with debt – and solutions that work. Book your free confidential consultation with a caring local expert today.