If you are in a large amount of debt and you want to look into restructuring it, then you will essentially agree with your creditors to pay back a reduced amount, with different terms that make the whole thing much more affordable for you.
If you have a family and you are struggling to meet some of your financial obligations then this can be a sigh of relief, as it gives you the chance to get your debt under control.
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Falling Deeper into Debt
A family who has $25,000 in unsecured debt may find it hard to make the minimum payments.
If this is the case, then they would struggle to sustain their financial health without spiralling into even more debt.
They would then be vulnerable to high-interest lenders, making it even harder for them to escape the situation they are in.
When your debt climbs to a point where you are not able to sustain the payments you have made, and you don’t have any credit left to subsidise your income, then creditors may come to the conclusion that you are going to file for bankruptcy.
At the end of the day, creditors know that if you are able to file for bankruptcy then there’s a high chance that you are going to end up with absolutely nothing.
Debt settlement means that your creditors have the guarantee that they are going to get some form of payment, and you know that you are going to be able to afford everything.
You and your Credit Rating
A lot of people think that they can restructure their debt if they run into financial difficulty and that everything will be okay.
This isn’t really the case because there are consequences when it comes to restructuring your debt.
You may find that your credit rating takes a hit and that you are not able to meet your long-term financial goals as a result.
It is possible for you to regain a good credit rating, but it is a long process.
For this reason, you should really only think about restructuring your debt if you are not able to afford the payments you are making right now.
How Much Could You Save by Going through a Debt Consolidation Process?
If you are $48,000 in debt, and choose to do nothing then you will find that it is going to take you 10 years to get out of debt if you make the minimum payment.
This would be around $1100 a month.
If you go through credit counselling, which is usually based on a 60-month program then this would put your minimum payment at around $900, and you would go for five years.
If you go on a regular consumer proposal for a period of 60 months, then your payment would only be $280 and you would pay back over 5 years.
It’s amazing to see what a difference there is here and it’s incredible how much it could help you to dig yourself out of the situation you are in right now.
Of course, if you need any help with your debt then please feel free to contact us at Bankruptcy Canada.
We would be happy to give you the support you need with your debt.