Are your debts keeping you awake at night?
Do you dread the arrival of your mail in the morning?
Does your heart skip a beat at the sight of missed calls and voicemails?
Debt is a simple fact of life for many Canadians.
But in their zeal to recover the money you owe them, some creditors can get aggressive and invasive.
This can add to the already significant anxiety that debt causes.
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Add to this escalating interest rates, an inability to budget and save and an increased reliance on high-interest debts like cash advances and payday loans and you have a recipe for a prolonged spiral of guilt, worry, embarrassment and stress.
Choosing the right debt settlement options can help you to break the cycle, satisfy your creditors and live debt-free.
But in order to choose the right solution, you need full possession of the facts.
Here we’ll lay out some safe debt settlement options, as well as those that are best avoided, to help you make an informed decision…
Debt Management Plans
Debt Management Plans are probably one of the easiest ways to settle your debts.
There are many non-profit Credit Counselling organizations that offer this service, although there are also some private companies that also offer it.
In a Debt Management Plan, the Credit Counsellors negotiate with your creditors on your behalf to make your debts more manageable.
They are essentially a form of debt consolidation.
If you have been turned down for a Debt Consolidation Loan due to your credit rating, this may be a useful alternative.
Furthermore, a Debt Management Plan may allow you to significantly on interest rates, or even write off interest altogether.
In an era where Canadian households are giving up 7.1% of their disposable income to pay interest to their creditors, this is understandably appealing.
It can help you to pay off your principal debt faster and live a debt-free life in a few years rather than decades.
There are some caveats to this option, however.
This is a voluntary agreement with your creditors, and legally they have no obligation to stick to it.
If you miss a single payment they may walk back the arrangement and you’re right where you started.
Furthermore, a Debt Management Plan cannot be applied to government debts like student loans or CRA debt.
Nor are they a good option if you owe more than $10,000 and have more than 2 or 3 creditors.
A Debt Management Plan will also remain on your credit report for around 3 years after it has been settled.
Still, if you only have a few creditors and owe a relatively small amount, this option can save you a lot of money in interest and help you to get free of your debts.
If you cannot apply a Debt Management Plan, you may assume that your only option is Bankruptcy.
However, a Consumer Proposal may be a more appropriate alternative to filing for Bankruptcy.
You can see a more detailed comparison between the two here.
It’s not possible to apply for a Consumer Proposal on your own.
You need a Licensed Insolvency Trustee to act as your Proposal Administrator.
Click Here to find a Licensed Trustee near you.
They will look closely at your debt, take stock of your income and assets and help you to come up with a proposal that will be appealing to your creditors while also being manageable for you.
In most cases, you’ll be able to hang onto assets that you might have lost to Bankruptcy.
When your proposal is put to your creditors, you only need a 51% majority to agree to its terms.
This is enough to make all of your creditors legally bound by the terms.
Even if they didn’t initially agree to them.
Be warned, however, that this cuts both ways.
Fail to make a payment without first making contact with your creditors and your proposal could be rendered null and void.
Miss three payments in a row and you’ll be right back to square one.
Another advantage over Debt Management Plans is that not only are all interest charges and additional fees written off, you can also have up to 80% of your principal debt forgiven.
A Consumer Proposal can help you to get completely debt-free in just 5 years.
It will remain on your credit report for 3 years after it has been settled.
Informal Debt Settlement Plans
This last option should be approached with extreme caution.
In most cases, all these unlicensed services can do is set up an Informal Debt Settlement Plan with your creditors.
According to the Canadian Bankers Association, only 10% of these end up resolved in a satisfactory manner.
Alternatively, they may introduce you to a Licensed Insolvency Trustee.
For this they will expect a substantial fee for doing very little.
Furthermore, most Trustees worth their salt will not fraternize with these unlicensed services.
Be extremely wary of anyone who charges you upfront to meet with a Licensed Insolvency Trustee.
You shouldn’t have to pay to see these professionals under any circumstances.
How we can help
Since 1999 we’ve helped over 100,000 Canadians just like you to find the right debt settlement option for their needs.
Unlike most non-profit Credit Counselling services, we can help you to examine all of your available options by helping you find a trustworthy Licensed Insolvency Trustee in your area.
Want to know more about the services we offer.
You can call us without charge or obligation on (877)879-4770.
We’re here to help!
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?