Are You Ready to Do Something About Your Debt Load?

It seems to happen every year. Another financial survey reveals that managing debt is one of the top resolutions or concerns for Canadians as they head into a new year. Yet, as winter turns into spring and spring turns into summer, families across the country continue to struggle, unable to make a dent in their household debt balances.

We know from our 2018 Affordability Index Report that three-quarters of Canadians have personal debt. Even more alarming is that one-quarter of Canadians are actually overwhelmed by their heavy debt loads.

It is a worrisome reality: personal debt is affecting the average Canadian’s ability to afford basic needs and prepare for major life milestones like buying a home, having kids and saving for retirement.

Are you ready to do something about your debt?

The first step is to get help. Here are a few things you need to know before making an appointment with a debt professional:

Not all debt professionals are alike

Before you can solve any problem, it helps to do your research. The same is true when you are looking for a debt professional to help you resolve debt problems.

Licensed Insolvency Trustee (LIT)

A Licensed Insolvency Trustee — or LIT — is the only debt professional authorized and licensed by the federal government to file a consumer proposal or bankruptcy on your behalf. You don’t need to have insurmountable debt in order to speak with an LIT. Here are a few facts you should know:

  • Your initial consultation with an LIT is cost-free and no-obligation.
  • An LIT will review the details of your financial situation, listen to your concerns and answer your questions before recommending a debt solution.
  • If a consumer proposal or bankruptcy is not the right debt solution for you, an LIT can refer you to another trusted debt professionals who can help you with credit counselling or debt consolidation.
  • If you decide to file a consumer proposal or bankruptcy, your LIT will assist you each step of the way, helping you get a fresh financial start.

 

Certified credit counsellor

If you’re having trouble budgeting or managing your credit, a not-for-profit credit counsellor can provide one-on-one counselling. A credit counsellor can also set up a Debt Management Plan (DMP) for you, which is also referred to as an informal proposal.

A DMP differs significantly from a consumer proposal. For example, with a consumer proposal, your interest charges are frozen and you will usually repay only a portion of what you owe your creditors. With a DMP, you’ll usually repay 100 per cent of what you owe. Although a credit counsellor can negotiate with your creditors to decrease interest rates or extend your repayment period.

Learn more about the differences between a consumer proposal and DMP here.

If you are thinking of speaking to a credit counsellor to help with debt management, ensure that you follow these guidelines issued by the Financial Consumer Agency of Canada.

Lenders

A bank or credit union can offer you a consolidation loan which will combine all your unsecured debts into a monthly payment. A few things to consider if you are thinking of using this debt relief option:

  • There is a chance you may not be approved for a debt consolidation loan. Banks usually rely on your credit score and income to determine your ability to repay the loan.
  • You will be charged interest on your loan, although interest rates will likely be lower than what you are currently paying on your credit card balances.
  • If you are using a debt consolidation loan to pay off credit card debt, remember to follow a budget and reduce your expenses if you can. And, of course, resist adding new charges to those newly-paid-off credit balances!

For a more detailed look at how a debt consolidation loan works, check out this example from the Financial Consumer Agency of Canada.

How will you know when it is time to seek help?

It is not always easy to take that first step. If you’re not quite sure you need debt help, start by asking yourself the following questions:

  • Is my debt stressing me out?
  • Am I skipping bill payments?
  • Am I only able to make minimum payments on my credit card balances?
  • Am I receiving calls from collection agencies and creditors?
  • Am I using credit to stretch my income?

If you answered “yes” to any of these debt warning signs, it is a good idea to speak with a Licensed Insolvency Trustee about viable debt solutions. If you’re able to deal with your debt load before it becomes unmanageable or overwhelming, you will have more options available to repay your debt and get your finances back on track.

How are you dealing with problem debt? Share your story with us on Facebook or Twitter. #LeaveDebtBehind