Canada is a nation of debtors, and it’s almost inevitable that you will use lines of credit throughout your life for various purchases and services.
However, there’s a significant difference between paying your balance over a few months and landing yourself in an endless cycle of debt that continues to hover at the same level despite making monthly repayments.
Long-term debt can have a hugely negative impact on your financial future, even if there is no threat of insolvency.
BankruptcyCanada can help you understand, and clear, long-term debt in the most effective manner.
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The Problem With Long-Term Debt
In today’s climate, millions of people fall into the trap of long-term debt.
After all, the eye-catching offers of making minimum payments can make purchases feel like far smaller financial commitments while the continued repayments can actively boost your credit score too.
However, there is a reason why creditors want clients to take this approach…
Creditors make far greater profits when debtors use minimal payments rather than clearing their balance ASAP due to the compound interest rates.
So, while having more funds in your current account may make you feel good, it’s costing you money in the long run.
Worse still, the fact that you are not falling behind on your debts can trick you into thinking your finances are under control.
In reality, you are sleepwalking into a financial pitfall.
Now is the time to awake yourself.
An Example Of Long-Term Debt
The easiest way to see the impact of interest, and its ability to place a stranglehold on your finances is to look at an example.
For the sake of convenience, let’s create a hypothetical situation in which you owe the following:
- $3,000 on a store card with 25% APR.
- $10,000 on a personal loan with 5% APR.
- and $12,000 on a consolidation loan with 10% APR.
If the store card is paid off with a minimal payment of $100, it will take 3 years and 9 months to clear the debt, costing you $1,452 in interest.
Meanwhile, at $200 per month, the personal loan will take 4 years and 9 months, costing you $1,205 in interest rates.
The consolidation loan at $250 per month will take 5 years and 1 month to clear, costing you $3,168 in interest.
In total, then, your $25,000 debt will cost you $30,825.
This means you’ve spent almost six thousand dollars on interest alone.
How To Overcome Long-Term Debt
If that eye-opening example has left you wanting to clear your debts, there are a couple of popular options at your disposal.
- Prioritize clearing your debts by sacrificing luxuries and organizing your funds to clear balances in the quickest time possible, thus reducing the interest rate.
- Consolidate your debts through a debt consolidation settlement that secures a reduced interest rate with creditors without requiring additional borrowing.
- Submitting a consumer proposal to negotiate a reduction of interest rates and principal fees, or focus solely on freezing interest rates.
Either way, you can clear your long-term debts without filing for bankruptcy.
Nonetheless, this is only possible when the right strategy is implemented, which is why speaking to an experienced financial advisory service is key.
Take the first steps today by calling BankruptcyCanada or visiting your local office.