The Canada Emergency Business Account (CEBA) provided a financial lifeline to 898,271 small businesses in…
Do you hate all the debt you have right now? You could be like many people with more debt than you can handle. You might owe money on a mortgage, car loan, line of credit, credit cards, and possibly payday loans. Managing multiple payments every month can be exhausting, even if you’re able to afford it. So, what should you do? Should you consolidate your debt or consult a debt expert like Credit Canada or Consolidated Credit? What about other options for your debt?
Credit Canada offers several ways to help you with your debt. However, there are other solutions to manage your borrowing if you have too many payments or owe more than you can repay. Understanding your options will help you make the best decision for your finances. Here, we’ll look at what Credit Canada and Consolidated Credit offer and why other solutions might work better for you.
Credit Canada and Consolidated Credit
Credit Canada and Consolidated Credit are not-for-profit credit counselling agencies. These agencies are not lenders, and they’re not Licensed Insolvency Trustees (LITs). However, they each have a long history in Canada, helping people manage their debt. If you’re a client, you’ll receive help from a credit counsellor, who will assist you with your finances. It’s important to be aware that there may be fees associated with some of the services that credit counselling agencies offer.
Having a budget that works is key to managing your money. Credit counselling agencies will look at all your finances. They review your take-home pay, debts, assets, and expenses. They will help you develop a budget that works for you. The budget will be based on your income, expenses and financial goals.
A budget can show you if you can reasonably make all your payments. It will also show you if your payments are too high to handle. If you can make your payments without too much stress, developing a budget and setting some financial goals may help you.
On the other hand, credit counselling agencies offer some solutions if your debt payments are too high for your income. They may offer solutions like debt consolidation or a debt management program to help you.
Your credit counsellor may suggest a debt consolidation loan. But credit counselling agencies don’t provide loans. To get a consolidation loan, you’ll need to go to your bank or credit union. A debt consolidation loan is a loan you use to pay off all your other debts so you have one payment. You might find this easier than trying to make many payments every month.
You need a good credit rating and enough income to support a debt consolidation loan. The bank or credit union may not approve you for the loan if your credit rating is poor or your income isn’t high enough. Additionally, a debt consolidation loan doesn’t reduce your debt. Instead, it restructures it to make your payments more manageable.
Debt management program
Credit counselling agencies offer debt management programs as well. They sometimes refer to this program as a debt consolidation program. In this situation, you’ll need the help of Credit Canada or another credit counselling agency you deal with.
Your credit counsellor will negotiate with your creditors to reduce or eliminate the interest on your debt. You’ll have one payment a month. You will make that payment to the credit counselling agency. The agency will divide and distribute the payments to your creditors according to their agreement. You can usually be debt free in 24-48 months.
A debt management plan will make your payments easier since you’ll only have one a month. Reducing or eliminating your interest rate will save you money as well. There is no minimum credit score necessary to qualify.
There are disadvantages to a debt management plan. They are:
- It will show on your credit report for two years.
- It doesn’t reduce the amount you owe.
- You may pay a monthly administration fee, and there may be interest charges.
Canadian debt relief
Depending on your circumstances, a debt consolidation loan or debt management program can be the right solution. However, there are other options available that credit counselling agencies like Credit Canada cannot offer.
What if you are insolvent? Being insolvent means you don’t have enough income or assets to repay the amount you owe. In a case like this, you might need a different solution to help you get back on your feet. Credit counselling agencies can recommend but can’t fulfill two options for you: Consumer Proposals and Bankruptcy.
You’ll need to contact a Licensed Insolvency Trustee to help you with either of these options.
Your credit counsellor may refer to you an LIT if they believe filing a Consumer Proposal or filing for Bankruptcy is in your best interests. However, they may charge a fee to do so.
Only a Licensed Insolvency Trustee (LIT) can file a Consumer Proposal for you. Your LIT will negotiate with your creditors to reduce your debt. Sometimes, they can arrange an 80% reduction on your debts. You’ll make one monthly payment to your LIT, who will then distribute the payment to your creditors.
A Consumer Proposal applies to unsecured debt. The maximum limit of debt for a Consumer Proposal is $250,000. You will have up to 60 months to pay it off. You can pay it off more quickly if you like. A Consumer Proposal will negatively affect your Canadian credit score. It will stay on your credit report for three years after you complete it.
Filing for Bankruptcy can eliminate your unsecured and secured debt. There is no maximum limit with a Bankruptcy. If you’re in a position where there’s no way to repay your debts, Bankruptcy could be a solution. You’ll need a LIT to file for Bankruptcy on your behalf.
If you’re filing for Bankruptcy for the first time, you can be debt free in 9 or 21 months. However, a Bankruptcy on your credit report will negatively affect your credit score. In addition, it will stay on your credit report for six years after you are discharged.
We’re Here to Help
Credit counselling agencies like Credit Canada offer excellent assistance and resources if you’re struggling with debt. They can help with budgeting, financial goals and offer programs to help you manage your payments and become debt free.
You might be in a situation where you need options that only a Licensed Insolvency Trustee can provide. If you feel you have more debt than you can repay, our LITs at Adamson and Associates will work with you to find the best possible solution for your debt. Reach out to us today at 519-310-5646 to book a free consultation. We will provide the guidance you need to get a fresh start.