Sometimes debt can feel like a shadow that is cast over your life. It restricts you from doing what you want to do with your life. You may feel embarrassed or hopeless, but remember misery loves company. Debt is much more common than you think, which is some consolation, but finding a solution is even more consoling. Over 100,000 all across Canada find solutions to their debt problems every year.
Most of us have debt in one form or another, the question is whether or not you are managing it correctly. Being in debt isn’t the end of the world. With the right debt management resources, you can continue to live your life while getting your finances in order.
Debt Is Enticing
Have you ever been in a store holding a basket full of items you don’t really need and asked yourself, “Why am I buying this?” Have you ever been coaxed into going out for dinner and drinks with friends against your better judgment? Even when you know there is barely any space left on your credit card. We know that we shouldn’t be spending our money on frivolous things but we close our eyes and we do it anyway.
What drives our need to get this “stuff?” It’s simply the need to be normal. The need to live like everyone else. The need to be equal to our friends and those around us. It’s enticing. But it can also become severely unmanageable.
Living With Debt
Do you know if you are managing your money properly? Let’s do a quick test.
- Determine your earnings for the past year.
- Determine how much you saved over the past year.
Were you able to save anything?
- Take a look at your possessions – determine how much of it is unnecessary.
- Determine an estimate of how much you spent on those unnecessary items.
That’s how much money you could have saved!
Failing to save and outspending your income is a recipe for debt. But, having the right debt management resources is essential to living with it. The first resource you should look at is budgeting.
A good budget makes sure that you:
- Cover your essential costs
- Save a specific amount each month
- Determines how much is left over to spend on extra items and activities.
Use a simple budgeting tool to determine how to divide your monthly earnings.
However, some debts are more severe than others and they require more than simple budgeting. At that point, it is wise to seek debt management help. There are a lot of debt management resources available out there.
Some are informal and therefore not legally binding. On the other hand, insolvency solutions that are legally binding are much safer and reliable options. To get safe reliable debt management help you will want to go see a Licenced Insolvency Trustee (LIT).
An LIT, is a professional that is federally regulated by the government of Canada to give debt help advice and services to individuals who need it.
They have a variety of debt management resources that they can offer you to help with your mounting debt. They can analyze your financial situation and suggest the strategy/strategies that will work best for you.
Non-Binding Debt Management Resources
Credit counselling provides education and advice on how to budget properly and live with your debts. For a fee a credit counsellor will set you up with a debt management plan to help you repay your debts in about five years.
But beware, credit counselors are not licensed by the government. They may charge you a fee to then turn around and refer you to an LIT.
Debt Management Plan
A debt management plan is a consolidation of all of your credit card and loan debt. An LIT/credit counsellor will negotiate with your creditors for a reduction or elimination of interest over a period of time. This allows you to repay your debts more easily.
Use a simple calculator tool to determine how much your monthly payments will be to pay back your debts in the allotted time.
Debt Consolidation Loan
This is a loan that combines all of your debts. You will, therefore, have one monthly payment with a potentially reduced interest rate. However, this strategy is a bit risky.
Look at the entire loan. Your monthly payments and interest may be reduced, but if the time period is extended you may end up paying more. Also, you must stay up to date because personal loans have very harsh penalties.
A debt settlement is an informal agreement negotiated with creditors to repay your debts in a lump sum. This lump sum is usually a reduced amount, but it must be paid in full once the settlement is reached. This strategy offers you no protection from creditors and is not binding. They may, therefore, reverse the terms of the agreement and are still allowed to file legal proceedings against you.
All of these strategies involve some risk and offer no protection. Instead of venturing out to credit counsellors and debt settlement firms it is better to go see an LIT upfront.
Legally Binding Debt Management Resources
A consumer proposal is a legally binding agreement that your LIT negotiates with your creditors. It can reduce your debts by as much as 70-80%. After this, you then make payments to pay down the remaining debt.
Once a settlement is reached you are given legal protection from your creditors. That means they must stop contacting you and legal proceedings or wage garnishments against you must stop. This proceeding can only be administered by an LIT.
A bankruptcy wipes away most of your debts in exchange for any extra assets you possess. You get an immediate ‘stay of proceedings’ which protects you from your creditors. If it is your first one it may be wrapped up in as little as nine months. A bankruptcy must also be administered by an LIT.
There is a lot of debt management help out there but it is important that you choose the right strategy that is safe and makes sense for your life. To check out your options set up a free consultation with one of our experienced LITs.