The Uncomfortable Truth About Debt in Canada

The Secrets of the Debt Industry and What They Mean for you.

0
3680

This is an advertorial and may contain links to other websites.

Uncontrollable debt is a problem faced by a large number of Canadians; many don’t know where to look for help. Some eventually take on more debt, paying more interest and spiralling even further. Does this sound familiar to you?

If so, take the quiz to see if you can reduce your payments.

We’re here to tell you that you are not alone. There are millions just like you, normal Canadians. The average citizen has over $20,000 in unsecured debt, and overall debt levels in Canada represent a massive 163% of household income.

To make matters worse, a clogged and noisy debt solutions market makes it difficult to know what solution is right for you, and who to trust.

You can choose from a whole host of debt solutions providers, licensed insolvency trustees, consolidation loan specialists, credit counselling agencies – each offering a different solution to the same problem, and each offering a wildly different fee and approach and not to mention a range of implications for your wellbeing and your financial future.

In such a market it is easy to make the wrong move too quickly or, even worse, to do nothing at all.

By taking the right action today, you can help put yourself and your family back into a better financial situation.

Our Quick Guide to Canadian Debt Solutions

If you are in a low amount of debt ($5k-$10k) with relatively low interest rates, there are a range of options you can implement today to get yourself back on track.

First and foremost, try implementing some basic budgeting and financial planning. It is too easy to be led astray with your finances when you aren’t focused on the future and maintaining discipline whilst pursuing your financial goals.

Set targets for your savings, look for unnecessary expenses and get back on the path to becoming debt free. Ruthlessly eliminate any outgoings you don’t need to live. Sell any assets you can live without to generate some extra cash which you can inject into your debt payments – old car, the spare TV, etc.

At this level of debt, some hard work and self-discipline is going to be your best tool in claiming back your financial independence, and these would be our first recommended steps.

Debt Consolidation

If you feel that you are beyond manageable debt levels, with higher levels of debt, high interest rates, payments in arrears and creditors chasing you up left and right – it’s probably time to look at more serious, urgent remedies.

A Consolidation Loan is one of the most common means of managing high levels of debt. This solution simply entails taking all of your outstanding debts and pooling them together into a single, much more manageable payment, with a lower interest rate and a (generally) longer length of term.

A Consolidation Loan can be an especially good option for homeowners, as they have the option to borrow money at a low interest rate (secured against their home) to pay off current high interests debts, resulting in a manageable monthly repayment and a low interest rate.

We would always advise that you analyse the small details to make sure you are getting a good deal with a Consolidation loan – look for hidden charges and make sure you figure out how much interest you’ll be paying over the course of the loan.

Remember that with debt consolidation you will still have to pay off everything owe, just over a much more manageable length of time.

Non-Profit Credit Counselling

Free always sounds good, doesn’t it? Not quite.

Credit Counselling Services make their money through the creditors you are in debt to and will charge you fees at some point. On paper these organisations are charities and claim not to make a profit, that doesn’t mean that they don’t make money though. At the end of the day, with a Credit Counselling Service you won’t write off any debt and you’ll still be stuck paying interest.

Debt Write Offs and Consumer Proposals

If you are in a position where there is know way that you are able to make the full payments to you creditors, you feel overwhelmed an stressed, Canadian Government legislation does allow you the option of writing off up to 75% off your entire debt (without going bankrupt). This is known as a Consumer Proposal.

This probably sounds too good to be true, and it does come with a few caveats, however this is likely your best bet if you are well and truly beyond any other solution. If you qualify (please speak to an advisor to find out if you do), you’ll be able to strike a deal with your creditors with the help of a specialist advisor, to reduce your debt and pay the remainder off over a period of 4-5 years.

You may wonder why it is ever in a creditor’s interest to do this? The logic behind this system is that a creditor would rather get back 25% of their money than none at all, which would be the result if you were to go into bankruptcy instead.

Under a Consumer Proposal, you’ll end up with a single interest free payment that is designed to be affordable for your circumstances – even if you’re unemployed. You’ll have written off up to 75% off your debt too, so you’ll be in a much better financial position much sooner. The payment must be low and affordable otherwise the Proposal is unlikely to work, as you won’t be able to pay it back anyway.

If you’re thinking this sounds too good to be true, then you’d be right in thinking that. There is one caveat.

What happens to my credit score?

Consumer Proposals are the second most negative impact you could impose on your credit score in Canada.

Consumer Proposals leave a mark on your credit score for 3 years after you’ve paid it off. This is by no means ideal, but is still not as bad as Bankruptcy (7 years).

With that said, if you are considering this course of action then it is likely not as bad as the alternative of doing nothing.

Where do I start?

The first thing you will need to do when you are in any level of debt is to stop and think. Have an honest conversation with yourself about your situation, and come up with a game plan.

Remember that the worst thing you can do is nothing – to find out what solutions might work for you, why not start by taking our simple quiz? If appropriate, one of our qualified advisors can walk you through the options with no obligation.