5 Debt Solutions
When you’re in debt, it’s hard to know which debt solution is right for your situation. Choosing the right option to solve your debt can mean the difference between getting out of debt and just making your debt problems worse, so it’s important to have the right information.
There are five basic alternatives you can choose to solve your debt problems. You can find information on each alternative below, then call to speak with a trained credit counsellor at for a free debt consultation. Your counsellor can assess your budget and provide recommendations on which debt repayment solution is right for you. You can also fill out Consolidated Credit’s Free Debt Analysis online to get started and a counsellor will be in touch shortly.
#1: Debt Negotiation
The most basic way to get relief from debt is to deal with your debts one at a time with a debt negotiation strategy. In debt negotiation you call each of your creditors (typically the credit card companies) and negotiate to get interest rates reduced and/or get late fees and penalties waived.
If your account is current focus on getting the interest rate reduced. If your account isn’t current and you can’t get a better interest rate, ask if they will waive any late fees or penalties that have been applied to your account or work with you to create a repayment plan.
#2: Debt Consolidation Loans
If you still have a fair to good credit score a debt consolidation loan can provide debt help by combining all of your high-interest unsecured debts into a single monthly payment. The trick to debt consolidation loans is you have to qualify for an interest rate that is low enough to be a benefit over what you’re paying on the original account.
You’ll enjoy the lower interest rate, typically lower monthly payments, and often may pay off your full debt sooner because the lower interest rate isn’t adding as much to your total each month.
#3: Debt Management Programs
A debt management program is similar to a consolidation loan in that it will combine multiple debts into a single monthly payment. The difference is debt management programs are not loans! While you will have an interest rate it will be low-much lower than anything you could get with a loan, especially if your debt problems have already affected your credit rating.
A debt management program allows a trained credit counsellor to act as a liaison with your creditors. You stop accruing late fees and your credit rating stops dropping as a result of late/missed payments. Debt management programs are usually the best option if you’re behind enough that it’s affecting your credit score.
#4: Debt Settlement
Debt settlement is a plan only a qualified professional can negotiate with your creditors to pay only a percentage of what you owe-either in a one-time, lump sum settlement or on a fixed monthly payment plan. This option is used when accounts are extremely behind where the creditor wants to recoup at least a percentage of what’s owed.
Creditors want their money, so they are usually resistant to settling for less than what you owe. They will typically require proof you have tried other options and that this is the only option you have left before bankruptcy. This option will negatively affect your credit score.
Debt settlement plans can be set up through a lawyer or for-profit company that handles debt settlement. These companies often charge high fees to administer your settlement. A similar debt repayment solution is a consumer proposal, which is a more formal legal process administered by a trustee on your behalf. There are other differences between the two programs so if you’re considering settling your debt, it’s important to know how debt settlement and consumer proposals work.
Bankruptcy should only be considered as a last option when you’ve tried everything else and nothing has worked. You are legally declared as unable to fulfill your financial obligations. Filing for bankruptcy stays on your credit report for 7 years and then your history is cleared, meaning you ruin your credit and have to start from scratch.
Declaring bankruptcy will drastically affect your financial situation now and well into the future. Before filing for bankruptcy explore every avenue to find another solution. If you’re considering bankruptcy call us today to speak with a trained credit counsellor. They can provide a free review of your budget, as well as recommendations on which options you may be able use to avoid bankruptcy. You can also get started online with a Free Debt Analysis.