By: Kurtis Parcells
Canadians burdened with debt and struggling to manage their finances have multiple debt relief options – the quicker the problem is addressed, the more options there are available.
If you are saddled with multiple forms of debt, consider consolidating them into a single debt with more favorable terms. Generally, debt consolidation loans offer a lower interest rate and lengthier repayment periods. Although this strategy doesn’t eliminate any debt, it may help reduce your monthly payment and make your overall debt repayment less burdensome.
Based on your debts, a non-profit credit counsellor creates a debt-management plan that allows you to repay your debt over a multi-year period. Similar to debt consolidation, this strategy will not eliminate your debt or reduce the principal amount you owe, but it can reduce the interest rate you pay making the monthly payments more manageable. The debt-management plan must be accepted by your creditors, who have no obligation to get on board.
In exchange for a fee, for-profit debt settlement companies negotiate with your creditors for an informal debt settlement agreement. This strategy isn’t suitable for most Canadians because it generally requires the debtor to have a lump sum payment ready to entice the creditor to settle. Debt settlement companies sometimes advise clients to stop repaying debts to save this required lump sum – this is risky because your credit score will be further impacted and additionally, nothing is preventing your creditors from taking legal action to collect in the meantime. A consumer proposal is likely a better option to settle your debt (see below).
Licensed Insolvency Trustee
Licensed Insolvency Trustees (LITs) are federally regulated professionals, and the only ones authorized to administer consumer proposals and bankruptcies. In addition to consumer proposals and bankruptcies, LITs can provide the full range of debt relief options covered in this article. Consulting a LIT and assessing your situation should be the first step to improve your debt struggles – find one in your area here.
A consumer proposal is a legally binding settlement between you and your creditors where you pay back a portion of your debts over a period of time in exchange for debt forgiveness. Unlike a debt settlement, this process provides legal protection for debtors – creditors cannot back out and are prevented from engaging in any collection actions against you while the LIT negotiates. A consumer proposal is typically the most suitable option for Canadian’s struggling with debt.
Bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act where a debtor surrenders their assets, and in exchange, their debts are eliminated. For more information and to learn if personal bankruptcy is the right option for you, please see our previous post about what it is and who qualifies.