Stop Yourself From Drowning In Debt

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How to Stop Drowning In Debt

The average Canadian household knows debt all-too-well.

Many of us have tens of thousands of dollars in loan and credit card debt, on top of hundreds of thousands of dollars more in mortgage debt.

Even excluding mortgages, the average Canadian household is an eye-watering $20,759 according to the bank of Canada.

We’ve spent so long living with easy access to loans and credit cards that paddling in the waters of cheap credit can seem extremely appealing.

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But when the low introductory interest rates and the perks run out, your debts can become a riptide, dragging you down further and further until it feels like you’re drowning in debt.

Fortunately, no matter how deep and dark those waters may seem, there’s always a lifeline.

Saving and budgeting

If you’re going to save yourself from drowning in debt, you need to teach yourself how to paddle.

This may mean re-familiarising yourself with skills that you have long neglected or learning new skills from scratch.

You’ll need to draw up a household budget (use one of these templates) and ensure that you stick to it.

You’ll need to cut down on little impulse purchases- they quickly add up.

And you’ll need to get into the habit of paying into your savings every month, even when times are lean.

The better you’re able to take control of your household finances, the less likely you’ll be to need to rely on credit in the future.

Debt Consolidation

What makes debt spiral out of control?

For many households, it’s the practicalities of juggling debts from several creditors, each with its own rate of interest and each getting paid out of their bank account at a different time of the month.

Debt Consolidation Loans can make your debts much easier to manage by consolidating them into a single monthly payment.

You can make significant savings on interest, since debt consolidation loans tend to have an APR of just 10%-15% as opposed to 19%-29% for most credit cards.

What’s more, because a Consolidation Loan repays all your existing debts, it can be advantageous for your credit rating.

Credit Counselling

If you’re unable to get a Consolidation Loan (perhaps because you have a less than stellar credit rating) fear not.

There are still several options available to you. One of which may be Credit Counselling services.

These are offered by numerous private and non-profit organizations, who can negotiate new terms with creditors on your behalf and put a Debt Management Plan in place.

These work similarly to consolidation loans in that they combine all of your debts into an affordable monthly repayment, making them much easier to manage.

They can also significantly reduce or even waive interest so you pay down the principal (the amount borrowed) faster.

It’s important to note, however, that Debt Management Plans are entered into voluntarily and creditors are not legally obliged to abide by them.

They also cannot be used for government debts such as student loans or outstanding tax payments owed to the CRA.

Still, this is a good option for many debts of around $10,000 or less spread between two or three creditors.

Consumer Proposals and Bankruptcy

If you have debts that have spiralled out of your control, and are no longer able to make repayments as scheduled, you are in a state known as insolvency.

But don’t worry, there are still options available when you are insolvent.

Unlike a Credit Counselling service, a Licensed Insolvency Trustee can make you aware of all your options rather than simply helping you set up a Debt Management Plan.

They can help you to set up a Consumer Proposal which can write off up to 80% of your principal and put a stop to all interest, charges and fees.

They may also advise that bankruptcy would be beneficial in your circumstances, and help you to fulfil your duties within the first 9 months of filing to ensure an automatic discharge of your debts.

Both of these options can also be leveraged against government debts including funds owed to the CRA.