Knowing your options can take away the worry and help you find the right solution.
Paying down debt appears to be the number one priority for Canadians this year. In a recent study by a major financial institution, 26% of respondents cited reducing their personal debt load as their top financial priority. Keeping up with bills or just getting by was the top priority for another 18% of respondents.
Source: Online survey of 1,508 Angus Reid Forum panelists conducted Dec. 7-8, 2015 for CIBC.
Despite these financial goals, more and more people are finding themselves in situations where they cannot get ahead of their debt. As a result, they feel helpless and anxious, and start believing there is nothing they can do to get back to a healthy financial position.
There is good news however; most debt is resolvable. There are available options that can relieve financial stress.
What options are available to help you shed the debt® ?
A number of options are available to help you get debt under control. It is important to consider the option best suited to your situation. If you are dealing with creditor phone calls, wage and bank garnishments, or legal action to collect on overdue balances, a conversation with a licensed insolvency trustee such as Goldhar & Associates, is a good start. Only a licensed insolvency trustee can offer you legal protection from creditors and stop the phone calls, letters and legal actions.
If your situation has not escalated to that level, these steps may help you resolve your debt troubles.
Talk to your creditors.
If you are temporarily in a position where you are having trouble meeting your minimum payments, or you are already a month or two behind on payments, contact your creditors to discuss the problem and how you propose to get caught up. You can suggest that you would like to make a lower payment over a longer period of time, or that the creditor reduce the interest charged on the debt. These are efficient ways to overcome a short term cash flow problem and keep your creditors from taking action to collect. Creditors are open to such arrangements.
Consider a debt consolidation loan through your bank or financial institution, or refinance your mortgage.
A debt consolidation loan lets you take care of all your creditors with a single payment to your bank or financial institution. The bank agrees to loan you enough money to retire all your debts, and pays the money out to your creditors directly. You then repay the bank with a single monthly payment for the term of the loan. You negotiate the length of the loan and the rate of interest with your bank. It is likely to be less than the rates you are paying to credit card companies or on store credit cards. Different banks and financial institutions have different interest rates, so you will want to shop around to find the most favourable rate, or seek the help of a financial professional before making such an arrangement.
An alternative to a bank loan is refinancing your existing mortgage, or taking out a second mortgage. Both options let you borrow against the equity in your home, which likely has increased over the last few years. If you have equity in your home, this is likely the most affordable way to borrow. A mortgage advisor is a good resource to help you find a favourable interest rate.
Credit counselling is also an option.
Credit counselling agencies are not-for-profit and are regulated by the provincial government. Services vary from province to province. If you are unable to borrow from a bank or refinance a mortgage, credit counselling can help you work out an arrangement with your creditors to stop collection calls, reduce the interest on your debts, and consolidate your debts into one monthly payment. Credit counselling also helps you create a budget to manage your living expenses and spending. Contact your local community counselling office or a credit counselling association to help you understand what services they offer and how they can help you. If you constantly have issues budgeting, this may be a viable and worthwhile option for you.
A consumer proposal permits you to negotiate a legally binding settlement with your creditors for an amount significantly less than the total of your debts. The settlement may be paid out in a lump sum, or through one monthly payment over a period of up to 60 months. A consumer proposal is offered under the Bankruptcy and Insolvency Act and is administered by a licensed insolvency trustee.
A consumer proposal stops all collection action, including wage and bank garnishments, and stops accumulation of interest on your debts. Your home and assets remain in your control. However, you may be required to borrow against your home equity or assets as part of the negotiated settlement. Savings in your RRSP are exempt, with the exception of contributions made in the last 12 months. Savings in a TFSA or RESP are not exempt.
To file a consumer proposal, you must be able to maintain the monthly payment schedule, and the total of all your unsecured debt must be $250,000 or less.
Your mortgage is not affected by a consumer proposal.
Bankruptcy is also an option, and it is not as scary as it sounds.
While usually considered the last resort, bankruptcy is not necessarily the “worst” resort. Bankruptcy is a reasonable option if you do not own significant assets, such as a home or other properties, or if you do not have sufficient income to enter into a consumer proposal. In a bankruptcy, you assign your assets to a licensed insolvency trustee, who in return relieves you of your debts, and uses the value of your assets to pay your creditors. Savings in your RRSP are exempt, with the exception of contributions made in the last 12 months. Savings in a TFSA or RESP are not exempt.
You may be required to make payment over time to the insolvency trustee equal to the value of your equity in your home.
Filing an assignment in bankruptcy stops all creditor actions, including law suits and garnishments. Monthly payments to the insolvency trustee may be required until you are discharged from bankruptcy, depending on your household income and the number of people in your family. A first time may be discharged in as soon as nine months, depending on your household income and the amount of debt discharged in the bankruptcy.
Bankruptcy is a serious financial decision. You must consult with a licensed insolvency trustee to determine if it is appropriate or necessary in your circumstances.
A personal financial review with Goldhar & Associates will help put things into perspective and suggest a strategy that best fits your unique circumstances. The consultation is free, with no obligation to move forward with any of the suggested solutions.
Talk to Goldhar & Associates today. Dial #(pound) DEBT on your mobile phone, or call toll-free 1-855-541-5114. Or use this easy contact form: http://shedthedebt.ca/contact