How to Get Out of Debt – Taking Control of Your Debt

Warning Signs of a Financial Problem

There are many warning signs that you might be in financial difficulties. Perhaps you find it difficult to pay your bills every month or credit collectors are calling you at work.

We all hate budgets, but they are vital if you want to take control of your debt. Bill and Shirley persevered and set up a plan for Bill to have his debt under control within 3 years.

The first step to recovering your financial health is to recognize some of the warning signs.

Assessing Your Financial Situation

Taking control of your debt is like breaking any other habit, such as smoking.

The first and most difficult thing to do is convince yourself that you really want to control your debt!

If you really want to do so, I guarantee that you can do it.

Do I Have a Financial Problem?

You can do a quick assessment of your financial situation by asking yourself the questions listed below. Answer the questions as accurately and honestly as you can.

Remember, not all financial problems need to result in bankruptcy and a bankruptcy trustee from Bankruptcy Canada can provide you with many different debt relief options.

If you answer “Yes” to any of the questions, you may have a financial problem and should
definitely take steps to getting your finances under control.

  • Are you making only the minimum payments on your credit card or other debt?
  • Are you having difficulty paying your monthly bills regularly and on time?
  • Are you unaware of the exact amount of your debt?
  • Are the balances on your credit card(s) growing each month because you spend too much on credit?
  • Are you over your borrowing limit on your credit cards, overdraft, or line of credit?
  • Are you using your overdraft protection?
  • Are you using credit because you don’t have the money for everyday expenses?
  • Do arguments about money cause problems in your family?
  • Are you being contacted by credit collectors?
  • Have you been denied for a loan due to a bad credit score?Consider Bill’s story. Bill is 28 years old, single, with a well-paying job. He has lots of debt and is just limping along financially. He has a big car loan, lots of credit card debt, and a poor credit rating. Bill always paid lip service to getting control of his debt but never really got serious about it.

One day Bill became really motivated to take charge of his debt. What happened? Bill met Shirley and after a few dates he knew this was the woman for him! He started to think of marriage, a house, and children.

Here is how Bill – with lots of help from Shirley – did it. They knew that in order to fix a problem they first had to understand it and identify how bad it really was. They wrote down all the debt Bill had incurred and the interest rate for each debt.

Then, they identified all Bill’s assets and listed all of his income and expenses. Sounds like the dreaded “B” word doesn’t it? Budgeting!

We all hate budgets, but they are vital if you want to take control of your debt. Bill and Shirley persevered and set up a plan for Bill to have his debt under control within 3 years.

Bill was surprised that once he was following the plan he and Shirley had set up, it wasn’t that bad. In fact, he got a tremendous amount of sanctification out of gaining control of his finances and setting up a solid plan for their future.

Twelve Ways to Get Out of Debt

12 Ways to Get Out of Debt as Explained by a Licensed Insolvency TrusteeJust as there are many different ways you can get into debt, there are a number of different solutions for getting out of debt.

Here are some things to consider when you are wrestling with your debt problem. Which one you choose is your decision. Remember, there is a solution for everyone!

Option 1: Do Nothing
Many individuals are what is known as “judgement-proof.” This means they have income from welfare, old age pension, or the Canada Pension Plan.

This type of income is next to impossible to garnishee, and in some cases, the law prohibits a garnishee. Many collectors will still contact these debtors, but there is nothing they can do to enforce collection. They can only verbally press the debtor for payment.

Often, setting up an unlisted telephone number will prevent calls, but be warned, a persistent creditor may be able to find an unlisted phone number.

Option 2: Negotiate a Compassionate Write-off With Your Creditors
You can have someone write to the debt collectors explaining your situation and the impossibility for you to repay your debt.

Often, elderly people or individuals with a terminal health condition, who have little income and few assets, may approach creditors and ask that they forgive or abandon their outstanding debts.

This should be done in writing and all creditors should respond in writing.

If the creditor writes off the debt, your good credit rating will be lost.

Debt owed to the Canada Revenue Agency can in some cases be reduced on compassionate grounds. The CRA enacted fairness provisions in 1991 to allow for the cancellation, reduction, or waiver of certain penalties and interest owed.

Usually, exceptions are made when a debt is incurred due to circumstances beyond someone’s control, such as –

  • Natural or human-made disasters, such as flood or fire;
  • Civil disturbance or disruptions in services, such as a postal strike;
  • Serious illness or accident;
  • Serious emotional or mental distress, such as the death of an immediate family member.

Option 3: Use Your Assets
If you have assets with some significant equity, such as a home or a car, you may be able to use these to get control of your debt.

For example, you could get a loan on your home that is sufficient to pay off your debts. You could be saving a considerable amount of money on interest if you pay off high-interest credit card debt in return for lower-cost debt.

If you have a car, consider selling it, paying off your debts, and buying a cheaper car. Be careful though! You don’t want to buy a “cheaper” car that will cost you a fortune in repair costs.

Option 4: Get a Second Job
Use the money from this job only to pay off your debts. Make a list of all your debts, noting the interest rates. Pay off the debts with the highest rates first and work your way down the list.

Option 5: Put Your Credit Cards on Hold
One of the best steps to take to get out of debt is to immediately stop using credit cards. At the very least, destroy all your cards, keeping just one for emergencies.

Option 6: Get a Consolidation Loan
A consolidation loan can make lots of sense. Get a loan from your bank or credit union to pay off all your many debts so you have just one payment to make. The new loan usually has a smaller payment and a lower interest rate.

Option 7: Cut Back on Expenses
You will be surprised at how much money can be saved if you cut back on certain activities such as smoking, buying coffee from the coffee shop every day, or eating out.

Option 8: Use a Credit Counsellor
Credit counsellors can assist you in acquiring the discipline you need to get control of your debt. Don’t assume that just because you have used a credit counsellor you will get a better credit than if you declare bankruptcy. In most cases, using a credit counsellor will be much more expensive than declaring bankruptcy.

Option 9: Use Your Province’s Orderly Payment of Debt System
Residents of some provinces (AB, NS, PEI, SK) can apply for a consolidation order. This provision of the Bankruptcy and Insolvency Act allows you to pay off your debts, usually over a three-year period, and clears you from creditor harassment and wage garnishment.

You can contact the following offices for orderly payment of debt information in your province.
Alberta –
NS –

Option 10: Make an Informal Proposal
In some cases you can make a proposal to your creditors to set up a payment plan that will allow you to pay your creditors in an orderly way and thus help preserve your credit rating.

This operates similar to a debt consolidation loan except you do not borrow the money to pay off your creditors.

In an informal proposal, you may be able to pay less than 100 cents on the dollar. For example, a relative may be willing to pay a lump sum to the creditor, of say, 50 percent of the amount owed in order for the balance of the debt to be written off.

This works best when there are very few creditors. This should be done in writing and all creditors should respond in writing. You will lose your good credit rating.

Option 11: File a Consumer Proposal Under the Bankruptcy and Insolvency Act
Under the Bankruptcy and Insolvency Act, a bankruptcy trustee files a consumer proposal or an arrangement between you and your creditors to have you pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both.

To qualify for a personal proposal, your creditors must be better off under a proposal than if you go bankrupt. Proposals have a number of advantages for the debtor who is under a great deal of pressure from his creditors.

Option 12: File for Bankruptcy

Filing bankruptcy is the ultimate solution to taking control of your debt. Once you have gone bankrupt, by law, creditors cannot take any action against you to collect any unsecured debt. Creditors are also prohibited from seizing your assets and garnisheeing your wages. Bankruptcy allows you to get rid of your debt, and, in most cases, keep your assets.

Creditors are also prohibited from seizing your assets and garnisheeing your wages. Bankruptcy allows you to get rid of your debt, and, in most cases, keep your assets.

Bankruptcy allows you to get rid of your debt, and, in most cases, keep your assets.

If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada.