Debt Relief in Canada: How can one get out of debt?

Understanding Debt in Canada: A Comprehensive Guide to Debt Relief

Canadian households have a tough time dealing with debt, as indicated by the recent Equifax’s report of 2022. The report reveals a debt to income ratio of 177.6% for an average Canadian household. This means for every dollar at their disposal, Canadians owe $1.78 in debt. While this might sound worrying, the good news is, there are several ways to manage and overcome debt.

In this article, we will explore the various options available for Debt Relief in Canada and how one can get out of debt.

Understanding Debt Relief

First, it’s important to understand that if you’re grappling with debt, you are not alone. Millions of Canadians are dealing with similar financial hurdles. The key is to not lose hope and to understand that there are ways to navigate through this financial maze.

In Canada, there are essentially two main types of debt relief:

  • Formal debt relief: This involves a legal process guided by a licensed insolvency trustee. Some examples include consumer proposals and bankruptcy.
  • Informal debt relief: This is non-legal and can be handled individually or with the assistance of a credit counsellor or financial advisor. Debt consolidation, debt negotiation, and credit repair fall under this category.

Let’s delve deeper into these options.

Formal Debt Relief Options

Consumer Proposal

A consumer proposal is a legal agreement between you and your creditors. This contract allows you to negotiate a reduced settlement of your debt or extend your repayment period. To qualify, you need to have at least $1,000 of unsecured debt that you cannot fully repay.

Bankruptcy

Bankruptcy is usually the last resort for individuals who cannot meet their debt obligations. While it can free you from your debts, it can have serious ramifications on your credit report and other financial matters.

Informal Debt Relief Options

Debt Consolidation

Debt consolidation involves taking out one loan to pay off all your other outstanding debts. This can be an excellent option if you qualify for a low-interest rate on the new loan. However, you must exercise caution not to accumulate more debt that you cannot afford to pay back.

Debt Negotiation

Debt negotiation is a viable strategy if you find it challenging to make payments. It involves negotiating with your creditors for lower interest rates, longer repayment terms, or even reducing the total amount owed.

Credit Repair

Credit repair involves rectifying any inaccuracies in your credit report and taking steps towards improving your credit score. A better credit score can improve your chances of securing loans and other forms of credit in the future.

Choosing a Debt Relief Plan

Your optimal debt relief option depends on your unique financial situation. If you’re unsure about the best route to take, consider consulting a credit counsellor or a licensed insolvency trustee. They can help you assess your financial situation and guide you on the best way forward.

When choosing a advisor, remember to:

  • Get referrals from family, friends, and colleagues.
  • Verify with your bank or credit union if they can recommend a reliable advisor.
  • Look at online reviews and ratings of different credit counsellors and licensed insolvency trustees.
  • Consult with your provincial/territorial consumer protection agency.

Once you’ve chosen your advisor, they can help you devise a suitable debt relief plan, negotiate with your creditors, and help you set a budget.

Steps to Get Out of Debt

It might seem daunting, but with discipline and the right approach, you can get out of debt. Here are some strategies:

  • Create a budget: Understand your income and expenses to know where your money is going.
  • Prioritize your debts: Focus on paying off high-interest debts first.
  • Make more than the minimum payment: This helps you clear your debt faster and reduces the interest cost.
  • Avoid new debt: Taking on more debt will only exacerbate your situation.
  • Seek professional help: If needed, take the help of a credit counsellor or a licensed insolvency trustee.

Getting out of debt might seem like a steep mountain to climb, but with the right plan and discipline, you can regain control of your financial life.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.