How to Restructure Your Debt
Save Money & Get Out of Debt Quickly
Debt consolidation is a crucial step towards taking back your finances when you have too many debts to handle.
Before you start the process, make sure to review your credit score.
Having knowledge of your score can assist in determining the available loans and consolidation plans.
The benefits of consolidating your loan balances into one loan are:
- Pay only once a month.
- Lower monthly expenses.
- Capability to bargain for reduced interest rates.
- Ensure that you pay a monthly payment until you are debt-free, with preferably 3-5 years as the case is.
- Personal loans, such as home equity loans or lines of credit, are available for borrowing.
Obtaining a personal installment loan with definite repayment periods will enable you to obtain an accurate understanding of the monthly payments you must make until you are debt-free. Avoid the temptation of making minimum payments and accumulating debt for extended periods.
Moreover, having an installment loan as your balance may be more advantageous for your credit scores than having a high credit card balance.
The long-term viability of these loans is dependent on the ability to maintain financial discipline and change your lifestyle, preventing you from getting back into debt again. The failure to alter their spending habits leads to some individuals becoming even more indebted over time. Additionally, it is important to exercise caution when obtaining a home equity loan or secured line of credit. Your home, which is the most valuable asset in your life, may be put up for foreclosure if you default on these secured loans.
Credit card consolidation or credit balance transfers
You can consolidate higher rate balances by using a low-rate credit card or 0% balance transfer offer, but there are some things to keep in mind:
The transfer may incur charges.
The offer is commonly associated with a temporary fee that lasts between 6 and 12 months. Subsequently, the rate can surge by a considerable amount.
Your credit scores can be negatively affected by using a significant amount of your available credit, particularly when you default on it.
The process of consolidating debt with a Non-Profit organization.
Although credit counselling agencies do not consolidate debt, creating a Debt Management Plan (DMP) through one of these groups, such as Money Mentors or Credit Counselling Society, is comparable to receiving consolidated loans. If you become a member of LDMP, you’ll be required to pay the counselling agency every month, and they will also cover all your participating creditors throughout the duration of your DMP membership. Also, your interest rates may be lowered and your monthly installments could be reduced.
A standard DMP entails paying off a single monthly payment over 3-5 years, with the expectation of repaying the debt fully and at varying interest rates. You will receive an R7 score on your Equifax credit report.
Consumer proposal
A Consumer Proposal will be created by the Administrator, who is a Trustee, in collaboration with you, similar to preparing if your debt is managed through an Debt Management Plan. Your unsecured creditors will receive a formal settlement, which involves payment in exchange for remittances or time constraints. Like a consolidation loan, it usually requires only one payment each month, but is paid to an Administrator who then distributes the money to your creditors on recurring basis. Provided that the Consumer Proposal is accepted by most of your creditors, it becomes a legally binding settlement between you and your unsecured creditors.
In a typical Consumer Proposal, you would typically pay one person every month for up to 5 years. The majority of proposals involve paying less than the total amount owed and still exempting debt payments from interest. You will receive an R7 score on your Equifax credit report.
By submitting a Consumer Proposal, you can safeguard your assets, tax refunds, and interest payments, as well as prevent wage garnishments and stop harassing or threatening phone calls from creditors. Your credit will be rebuilt and you can avoid debt once you comply with the Consumer Proposal terms and conditions by making payments.
Bankruptcy Canada is a team of Licensed Insolvency Trustees and Proposal Administrators. We have the ability to examine all available options for debt reduction and assist you in deciding which debt consolidation approach, if any, is suitable.
