Credit Consolidation & Debt Payment In Canada: What are my Options?

Canadian Debt Repayment Solutions: What Are Your Options & Which Is Best For You?

Many Canadians today are facing an enormous amount of debt, for almost as many different reasons as there are individuals.

No two cases are precisely the same, and consequently each person’s circumstances must be looked at through their unique lens.

In Canada, there are several measures in place that allow people to tackle their debts without filing for bankruptcy.

Here we examine two of them: debt repayment strategies, and credit consolidation.

What’s the difference, what are the benefits of each of them, and how do you decide which one is right for you?

We suggest that you contact the counsellors at Bankruptcy Canada for a thorough consultation on your finances and possible solutions to the problems you’re having.

But in the meantime, here are guidelines that may help you identify which way you should go.

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Credit consolidation

This simply means that, instead of having two or three (or, heaven forbid, six!) credit cards and outstanding loans, all of them getting you deeper and deeper into debt because of sky high interest rates, you have one.

Sometimes credit card companies offer special deals to new customers that give the first six months, for example, interest free on balance transfers.

Hence, you can switch your double digit interest rate card to one that’s interest free for several months and save an enormous amount of money.

This works only if you refrain from using the card at all and pay more than the minimum payment required, which reduces the debt even further.

But — and it’s a big one — you must also refrain, or even turn in the other credit cards so you’re not tempted to use them again just because there are no charges on them.

Remember, the goal here is debt reduction and the ease that comes with making just one monthly payment.

Don’t be lulled into thinking your financial situation is suddenly rosy — frankly, it probably isn’t.

You’ve simply got a brief reprieve on high interest rates that won’t last, so pay as much off as you can possibly manage while there are no interest charges.

Taking this route and really making it work for you takes discipline, and too often we have clients say they thought they could do this, only to have them wind up deeper in debt.

Debt Consolidation

This is a broader solution that usually offers different possibilities to too many debts.

You can choose one of five options — a home equity loan; a line of credit; a debt consolidation loan; balance transfers on credit cards (as we explained above) or choosing to enter into a debt consolidation program that enables you to make one payment monthly.

Here are some of the advantages of each one

Home equity loan

This allows you to access all the “built up savings” that exist in your home to pay off debts.

It only works if you’ve owned your home for a while; equity builds up over years, not months.

But since mortgage rates are fairly low these days — and always lower than consumer credit interest rates — accessing these funds can be a smart solution to your money woes.

One caveat, however: if you are counting on your home to supplement your retirement income by selling it to boost your pensions, remember that whatever you take out today will lessen those funds in the future.

Line of Credit

These, too, generally have much lower interest rates than credit cards and some kinds of loans.

However, they are dependent to some extent on you having a good relationship with your bank or other lender, and so make sure your credit card and other payments are up to date.

Debt Consolidation Loan

Unlike a home equity loan, this is not dependant on how much your home has increased in value.

But you will need some kind of asset to secure it — a paid off vehicle, for example.

Some institutions will offer unsecured debt consolidation loans, but the interest rates can be dreadfully high.

Usually the lender insists the borrow “cut up” those credit cards that weight so heavily on you, but that’s probably for the best.

Debt Consolidation Program

This means you enter into an agreed upon program with your creditors to get the debts repaid, at a lower interest rate.

Essentially, two or more debts are rolled into one, and you pay a set sum each month to reduce it.

An experienced credit counsellor, like the staff at Bankruptcy Canada, negotiates on your behalf with your creditors and right away all those upsetting collection agencies stop calling.

That in itself is a huge relief for our clients, and the one monthly payment feels much more manageable that six, seven, or even a dozen.

 

These alternatives to bankruptcy should be discussed thoroughly with your credit counsellor before you decide which way to go.

They bring experience, knowledge and absolutely no judgement to the table, which are precisely the qualities you need when you’re struggling with money problems.

Let Bankruptcy Canada navigate this difficult terrain with you, for your sake, for your family’s sake, and for the sake of your peace of mind, now and in the future.

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