Carrying a substantial amount of debt is overwhelming. The worry of managing it consumes most of your life. Will I ever be able to pay this debt back? What I am going to do? What a relief it would be to be able to make your debt disappear and start over again.
“There is a common perception around bankruptcy in Canada that it provides a fresh start to those beleaguered with debt. While it is true that bankruptcy basically erases your debts, it comes with many strings attached, including serious damage to your credit that lasts for years and years,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“When you are dealing with the emotional strain of debt, getting rid of it quickly is appealing. But know that there are options available that can help you get rid of your debt cause less damage to your credit and help you to move forward in a positive way. Your credit history has a great deal to do with your credit future, so you must proceed with caution,” says Schwartz.
Don’t trade in one debt problem today for more money trouble down the road. Bankruptcy should only ever be the debt solution of last resort. There are alternatives to bankruptcy in Canada. Here is what you need to know.
You may have the option of consolidating your debts to pay them off. If your credit is still in relatively good shape, but you are struggling to make payments, this may be a good option for you. You combine all of your debts into one payment, which will pay the debt down more quickly and increase your cash flow, so that you can budget for a cash-based lifestyle.
You can either DIY with a consolidation loan through a balance transfer on your accounts, or perhaps you can get a consolidation loan from your financial institution.
Debt management plan
If your credit score is too low or if your income isn’t enough to support loan payments, you may be able to find debt relief through a debt management plan (DMP). You will still pay your debts off, but you work with a credit counsellor to help devise a strategy to accomplish this. One of the benefits of using a debt management program is that you are usually able to get a lower interest rate, which can help you to pay down your debt at a faster rate.
A DMP will show on your credit history for 2-3 years, and will show that you’ve collaborated with credit counsellors, which can be to your advantage going forward.
In a debt settlement, a debt settlement company negotiates with your credit card companies to pay off a portion of the debt that you owe. A few things to keep in mind with debt settlement: there are a number of debt settlement companies that don’t have your best interests in mind. You should do your homework before you enter into any agreement and your creditors will not stop collection activities while you raising the funds to pay them off.
With a consumer proposal, you agree to pay your creditors a portion of the debt that you owe and the creditors agree to forgive a portion of the debt. This amount is negotiated through a Consumer Proposal Administrator (a Licensed Insolvency Trustee). The major benefit of the Consumer Proposal is that, although your credit is damaged, you do have a chance to improve your rating to an R7 with successful repayment of your debts.