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Are you struggling to keep up with the rising cost of living? Life events, such as a job loss or illness, often leave you with unmanageable debt. When your debt is snowballing, and your ability to pay it is not keeping up, finding debt relief can reduce your financial stress.

Types of Debt Relief

Some debt relief solutions are simple, while others are more involved. The one that will work best for you depends on your financial circumstances. There are six common ways to tackle your debt:

  • Create a budget and make a repayment plan.
  • Get a consolidation loan.
  • Negotiate a debt settlement.
  • See a credit counsellor for a debt management program.
  • File a Consumer Proposal.
  • File for Bankruptcy.

Each option has advantages and disadvantages. Knowing what debt payments you can manage and what you want to accomplish financially are key to choosing an approach for debt relief.

Create a budget

If you don’t have a budget, you’ll find it difficult to know how much money you have coming in, how much is going out in expenses and payments, and when your bills are due. A budget is a fantastic tool to help you manage your money.

One advantage of a completed budget is knowing if you have enough income to pay all your debts. Online calculators will help you determine how much you need to pay on each debt to pay them off within a specific time frame. If you want to pay off your debt faster, you can use the calculator to see how additional payments will help pay off your debt more quickly.

There are two popular methods for paying off your debt. The first is the avalanche method where you put any extra money towards the debt with the highest interest rate. Once that debt is gone, you focus on the debt with the next highest interest rate until all your debts are paid off.

The second, commonly referred to as the snowball method, is to pay off the smallest debt first. Then, apply the extra money to the next smallest debt. Both methods will help you be debt free faster.

A budget will also show you if you don’t have enough income to make all your payments. In this situation, consider the other options for debt relief.

A consolidation loan

debt consolidation loan is another possible solution if you have too many payments or high-interest rates. It’s a loan you use to pay off your other debts and is particularly effective for credit card debt.

With a debt consolidation loan, you’ll have one payment with an interest rate that’s more reasonable than credit card rates. In addition, consolidation loans are amortized, so as long as you make your payments on time, you’ll be debt free within the specified time.

There are a few disadvantages of consolidation loans. First, you have to apply for them. You are unlikely to get approval if you have poor credit or a lack of income to support the loan.

Second, the payments may be higher than you currently pay on multiple debts. A higher payment can put pressure on your budget.

Third, you have to stop spending. It’s easy to start using your credit cards again after you get a consolidation loan. However, doing this can leave you in worse financial shape than before consolidating your debt.

Negotiate a debt settlement

You can approach your creditor or creditors and negotiate a debt settlement with them. This means you offer them a lump sum, usually less than what you owe, and they will consider your debt paid. Of course, you need to have the cash available to do this. You might have received an inheritance, an insurance settlement or a severance package that gives you the money to offer a debt settlement.

If you are considering dealing with a debt settlement company, ensure they are legitimate and not a scam. Debt settlement companies will attempt to negotiate on your behalf, but they charge fees and often refer you to a Licensed Insolvency Trustee (LIT). You can set up an appointment with a LIT yourself and avoid the expense of a debt settlement company.

While a debt settlement sounds like a good idea, you must know that not all creditors will accept a settlement. Additionally, a debt settlement will show on your credit report and negatively affect your credit score. Finally, debt settlements only apply to unsecured debt. If an asset secures your debt, your creditor is more likely to take the asset and sell it to recover their losses than to accept a debt settlement.

Debt management program

Debt management programs are available through credit counsellors. Credit counselling agencies negotiate with creditors on your behalf to reduce the interest on your debt, sometimes down to zero percent. The agency will put you on a monthly payment plan that can be as long as five years. Then, you make payments to the agency, and they distribute the funds to your creditors. Saving the interest on your debt can help make your payments manageable.

A debt management program will hurt your credit rating, making applying for credit, securing employment or renting a place to live more complicated.  Like a debt settlement, debt management programs only apply to unsecured debt.

File a Consumer Proposal

Filing a Consumer Proposal is a formal, legal, debt forgiveness program available to Canadians. It is governed by the Bankruptcy & Insolvency Act and administered by Licensed Insolvency Trustees.

To file a Consumer Proposal, contact a Licensed Insolvency Trustee (LIT). Your LIT will work with you to determine if a Consumer Proposal is the right solution for you. A Consumer Proposal is only for unsecured debt, like a debt management program.

If you decide to file a Consumer Proposal, your LIT will negotiate with your creditors to reduce your debt, sometimes by as much as 80%. Then, you’ll have a payment plan to repay the remaining amount. Your repayment plan can be as long as five years.

A Consumer Proposal will give you debt relief by reducing your payments and making your payments reasonable. In addition, a Consumer Proposal will stop creditors from calling you or taking legal action against you. You’ll also be able to keep your assets.

Filing a Consumer Proposal will lower your credit rating, but it has a lesser effect than filing for Bankruptcy. Getting a secured credit card can help you rebuild your credit quickly and will help you qualify for a regular credit card after your Consumer Proposal is completed.

Filing for Bankruptcy

If you are insolvent, meaning you owe more than you can pay or your debts exceed your assets, filing for Bankruptcy could be your best option for debt relief. As with a Consumer Proposal, you’ll need a LIT to work with you to determine if this is the right option. If so, they will then file for Bankruptcy on your behalf.

Your Bankruptcy could be discharged in as little as nine months. After that, you’ll be debt free and ready to start fresh. Also, your creditors cannot contact you or take legal action against you.

Your credit rating will be affected for six years after you have been discharged from your Bankruptcy. After that, the denotation will drop off your credit report.

Some debts are not eligible for Bankruptcy, so reviewing your situation with your LIT is essential. Your LIT will also let you know which assets are exempt from the process and which are not.

Help With Debt Relief

A LIT’s help to sort through all the options available for debt relief is very valuable. At Adamson and Associates, we understand you want the best debt relief solution for your liabilities.

Please contact us for a free consultation at 519-310-5646. Our Licensed Insolvency Trustees have helped many people in situations similar to yours to find debt relief and get a fresh start. We will work with you and your unique circumstances to achieve the best possible outcome for you.

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