Bankruptcy is undoubtedly an effective method of debt relief, but some may be surprised to learn that it is not the only option. If you quickly ask for help with your debt problems, chances are you can avoid bankruptcy. Even if Quebecers have less debt than the average of Canadians in other provinces, many still face debt problems. This is why it is so important to properly educate yourself on the debt relief options available.
Using a loan to settle debts might seem strange, but it is an advantageous solution in certain situations. A debt consolidation loan is used to pay off other debts. The advantage: instead of having multiple debts with different interest rates, a debt consolidation loan allows you to have only one monthly payment, often at a lower interest rate. Since you are paying less interest each month on this one-time loan, you have the option of spending more money on your debt or savings. Your eligibility will need to be approved for a consolidation loan, and you may need to close accounts and cancel the credit cards that you will pay back with the loan.
Here, credit counseling involves collaboration with a professional agency offering credit counseling. A credit counselor can help you fine-tune your budget, choose a self-enforced debt repayment strategy, or set up an informal repayment plan with your creditors called a debt management plan. Even if a credit counselor can negotiate a reduction in your interest rates, you will have to pay off all of your debts. Make sure that the credit counselor you choose is accredited and find out about the fees you will have to pay.
The consumer proposal is the main alternative to bankruptcy. By working with an authorized insolvency trustee, you can establish a legal agreement with your creditors regarding the repayment of your debts. You will probably have to repay only part of your debts. In addition, your interest costs will be frozen and all legal proceedings against you will stop. Once your consumer proposal is filed, you will get an R7 rating, which will be visible in your credit report for a period of three years after release; however, this does not mean that you will no longer be able to obtain credit.
Bankruptcy sometimes has a negative connotation, but it is nonetheless a good option for debt relief. Bankruptcy eliminates your unsecured debts like credit cards, lines of credit and personal loans, but not all of your debts. Student debts, fines and mortgages are examples of secured debts that cannot be included in a declaration of bankruptcy. A licensed insolvency trustee will be able to answer your questions regarding the bankruptcy process. The Licensed Insolvency Trustee will always explore other debt solutions with you before advising you on going ahead with bankruptcy and making sure it is the best option for you.
If your debts have become a burden, find out about each of the debt relief options available to you. The Financial Consumer Agency of Canada has great information and resources to help you. If you’ve done your research and need help, don’t wait and contact an authorized insolvency trustee or credit counselor. The sooner you ask for help, the more options you will have to deal with your debt problems.