Shopping Around to Find Your Best Debt Solution?

Exploring the Best Debt Solution for Your Needs

Navigating through the complex world of debt solutions can prove to be a challenge. In British Columbia, the playing field isn’t equal, and what you don’t know might end up costing you dearly. Whether you’re actively seeking a debt management strategy or simply curious about the differences in options, this article will guide you through what you need to know about debt solutions.

Recognizing the Need for Debt Consolidation and Other Solutions

Many individuals struggle with determining when their financial situation has reached a point where professional assistance is necessary. Unless there are glaring signs such as wage garnishment or a lawsuit filed by a creditor, it can be difficult to determine whether your debt has reached a critical point.

Consider seeking professional help if you identify with any of the following scenarios:

 

  • Your current repayment plan will take you over five years to clear non-mortgage debts.
  • You’re barely managing to make the minimum monthly payments on your debts.
  • Your credit balances remain static due to constant credit usage, even for regular monthly expenses.
  • Your credit score is suffering due to large debts or a high debt-to-income ratio.
  • You have “high-risk” debts like payday loans or government debts.
  • Your debt is causing you stress, anxiety, or consumes your thoughts.

 

As Licensed Insolvency Trustees, we often interact with BC residents seeking advice on managing their debts. If you suspect that your debts are becoming a problem, you’re likely right.

Common Consolidation and Credit Solutions

Many individuals consider turning to a bank or other lender for debt assistance. While banks may offer credit products to refinance your debt, these solutions are often limited. Usually, you will be required to:

 

  • Have a credit rating favorable enough to meet the lender’s eligibility criteria.
  • Provide an asset as collateral for your refinanced debt.
  • Have a co-signer share responsibility for your consolidated debt.
  • Understand the risks associated with co-signed debt.

 

When Might Bank-Based Debt Consolidation Be a Poor Choice?

It’s crucial to analyze your specific situation, needs, and overall goals before committing to any lending agreements. Even if you meet the eligibility criteria, the cost and monthly payments of bank or lender-based debt solutions may be challenging. Here are some questions to consider:

 

  • Can you afford to repay 100% of your debt (plus interest) with consistent monthly payments over the next 2-7 years?
  • Do you have any debts that aren’t credit-based, such as outstanding tax debts, student loans or ICBC debt?
  • Have you fallen behind in any of your payments, or are any of your creditors threatening you with legal action?
  • Are you confident that you won’t take on any new debt until your current debts are paid off?

 

Ensure you clearly understand the terms of your agreement and can afford the payments. Be wary of high-pressure sales tactics or representatives urging you to sign immediately.

Debt Consolidation without Borrowing

Consolidating debt without borrowing is a viable option that many Canadians are unaware of. This can be particularly beneficial for those looking to reduce their monthly payments by eliminating ongoing interest charges. Non-borrowing consolidation options include:

 

Credit Counselling Plans: A credit counselor will devise a plan to consolidate your eligible debts. You will typically have to repay 100% of your debt in addition to a fee to the counselor or their non-profit society. However, you will get a break on interest charges and receive financial literacy education and support.

Consumer Proposals: Consolidate and reduce virtually all your debt to an affordable amount with a Licensed Insolvency Trustee. Your creditors will write off the balance. This option includes and reduces government debt, with no added interest or fees. You’ll receive private financial counseling services, giving you access to resources about credit scores, spending habits, savings strategies, and more.

 

What’s the Most Cost-Effective Way to Consolidate Debt?

Eliminating debt when you have limited resources can seem like a daunting task. However, it is possible, even without incurring additional fees, interest, or referral costs. A Consumer Proposal combines the benefits of debt consolidation loans with Canadian consumer rights law, resulting in a powerful debt solution tailored to your individual situation.

For instance, let’s compare the difference in monthly payments for consolidating a $25,000 non-mortgage debt, with the goal of having it entirely paid off in 48 months:

 

With an 8% interest rate consolidation loan, monthly payments are approximately $610.

With a no-interest credit counseling plan, monthly payments are roughly$520 + fees.

A no-added-fee Consumer Proposal that repays 40% of the debt interest-free (with the remaining $15,000 forgiven/written-off by your creditors), has monthly payments of about
$208, all inclusive.

 

The process of dealing with debt and researching debt solutions can indeed feel overwhelming. However, remember that you have options that can help you achieve your debt-free goals.

Ready to become debt-free? You’ve got support and solutions with Bankruptcy Canada. Connect with a local Licensed Insolvency Trustee today, even from the comfort of home – book your free confidential debt consultation now.

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.