3 Debt Consolidation Options in Canada
What Options Do I Have to Consolidate My Debt?
For many Canadians, debt has become an unavoidable part of day-to-day life.
As the cost of living continues to rise, yet our wages don’t rise to meet it, we can find that we need to pile debts on top of debts just to keep our heads above water.
As we accrue more debts, they can become harder to keep track of.
We accrue numerous direct debits coming out of our bank accounts every months.
Each on a different date with a different rate of interest.
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This can not only make debts harder to manage logistically, but also exacerbate the psychological effects that our debts have on us.
If we don’t take active steps to reign in our debts and get them under control, they can cause us sleepless nights and ill health for years.
You could be forgiven for thinking that filing for Personal Bankruptcy is the only way out.
Yet, while this may be a good option for many, it is by no mans your only option.
If you want to liberate yourself from debt but aren’t sure about the idea of Bankruptcy…
Debt consolidation is the answer!
If your debts have become too difficult to manage and you are either insolvent or at risk of insolvency, it’s time to take control.
Consolidating all of your debts will make them easier to manage and prevent you from spending a fortune on interest, fees and charges.
So you can pay down your principal more quickly and get free of debt faster.
When it comes to Debt Consolidation in Canada, there are 3 options available…
Debt consolidation loans
This is a good option for those who want to pay off their debts faster and more manageable while also wasting less of their monthly outgoings on interest, fees and charges.
Debt consolidation loans are offered by banks and other private institutions and tend to offer much more favourable interest rates than unsecured loans and credit cards.
While a typical credit card will have an interest rate of 19%-29%, a consolidation loan will usually have an interest rate closer to 10%-15%.
Because they essentially pay off all of your existing debts and replace them with a single new one, debt consolidation loans are a fast and effective way to improve your credit rating.
Debt consolidations may need to be secured against an existing asset like your home or vehicle.
What’s more, you may not qualify for a loan if you have low / sporadic income or if your credit rating is poor.
While they’re not for everyone, they are an accessible and potentially useful way to get debt-free, faster.
Credit counselling consolidation
Credit counselling consolidation (also known as a “debt management plan”) is a service usually offered by non-profit entities who help people to take control of their consumer debts.
If you choose this option, a credit counsellor will negotiate with your creditors on your behalf to arrange more favourable terms of repayment.
This will usually give you more disposable income, so you can pay more into your savings and rely less on credit in the future.
It will usually also include renegotiating interest rates and charges (in some cases, interest may be stopped altogether) so that you pay down your principal faster.
You will be charged a fee for using this service, whether you use a private or non-profit Credit Counsellor.
Nonetheless, this will usually pale in comparison to what you save in interest.
A credit counselling program will show up on your credit score for 2 years, compared to the 6 years that a first Bankruptcy will last for.
As such, it can help you to rebuild your credit score even as you free yourself from debt.
While this may prove a useful option for many, it’s worth noting that these plans cannot be used to manage government debts such as tax debt to the CRA or student loan debt.
It’s also worth noting that not all creditors will agree to a debt management plan.
Even non-government creditors are not legally obliged to accept your terms.
A Consumer Proposal is highly beneficial for those who have substantial debts which they have become unable to repay.
A Consumer Proposal doesn’t just make it easier to repay your debts, it can actually help you to write some of them off.
As much as 80%, in fact!
And unlike a debt management plan, Consumer Proposals can be leveraged against tax or student debts.
In order to pursue a Consumer Proposal, you need a Licensed Insolvency Trustee (Click Here to find one near you) who can act as a Proposal Administrator.
They will look closely at your finances and help you to put a proposal forward to your creditors.
If a 51% majority of your creditors agree to your terms, they are all legally bound to them.
Better still, by law, all interest and charges have to be frozen.
Consumer Proposals typically take 3-5 years to repay and will usually remain on your record for a further 3 years(or 6 years from the start date, whichever comes first).
However, with substantially less coming out of your bank account every month, you’ll be able to better manage your finances so that you’re less likely to need credit in the future.
You can read more about the potential benefits of a Consumer Proposal in this post.
How we can help
We’ve been helping Canadians from all walks of life to better manage their debts since 1999.
When it comes to seeking advice on debt relief solutions, you need to know all of your options.
A non-profit Credit Counselling service can help you to set up a debt management plan, but this may not be the best solution to suit your needs.
Because we put you in touch with Licensed Insolvency Trustees, we can ensure that you know all of your options, and can choose the best one for your unique circumstances.
Don’t let your debts drag you down a moment longer.
Call us today at (877)879-4770, and we’ll arrange a risk-free, zero-obligation and 100% confidential callback.