Debt Management and Relief Options

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No one likes to think about their debt, but it is important that you do. It could be the difference between getting into more financial trouble down the road or having a chance at financial recovery. Fortunately, there are many debt management and relief options for Canadians, which can help to reduce your debt burden.

In this blog post, we will discuss how these options work and what they can offer you:

What is Debt Management & Relief?

If you are struggling with repaying debt and cannot keep up with your payments, it is time to consider debt management and relief options. Debt can quickly become out of control and seriously impact all aspects of your life. By seeking professional assistance for debt management, you can take back control of your finances and start thinking about a brighter future.

There are many reasons why people end up in debt. It could be due to a job loss, medical emergency, or simply living beyond your means. Whatever the reason, debt can quickly become a huge burden. Here are some common options for debt relief:  

Credit Counselling

Credit counseling is one way to manage your debt. A credit counseling agency can help formulate a new plan to repay your debt or negotiate with creditors on your behalf.

By making small payments to the credit counseling agency rather than paying off your debt directly, they will be able to negotiate for a manageable repayment schedule on your behalf.

Along with negotiating in your best interest, credit counselors can also help you develop a pragmatic spending plan to avoid taking further debt in the future.

Debt Settlement Plan

Debt Settlement Plan refers to a process that allows you to get out of debt for less than the full amount you owe. Depending on your financial situation a Debt Settlement Plan could be an option for you to consider when your debt has been unpaid for a while, in collections or you are being sued by the creditor.

Debt Settlement involves negotiating with collections agencies or banks and their lawyers, for the purpose of obtaining an agreement for a reduced payment of the debt. This can be achieved on your own or you can hire a debt settlement firm to negotiate with a creditor on your behalf. A debt settlement firm will handle all forms of communications with creditors and negotiate entirely on your behalf. This helps avoid calls and pressure from creditors, and in-turn the stress and anxiety that can come with it.

This option should also only be considered if you are confident that you can stick to the repayment plan and have a steady income.

Consumer Proposals

A Licensed Insolvency Trustee (LIT) negotiates a debt settlement between you and your lenders/creditors which details how much debt will be forgiven, what you must repay and how long you will have to repay it. 

When you arrange to settle your debts through a consumer proposal, your creditors are bound by the terms of the agreement. The trustee sends all your creditors the proposal and they vote to accept or reject it. As long as the majority of your creditors accept it, all your creditors must honour the formally binding agreement.

Almost all forms of consumer debt can be included in a consumer proposal. These include credit card debt, personal loans, lines of credit, car loans, and payday loans. Once approved, a consumer proposal can stop creditors from taking legal action against you. Through a negotiated payment plan, it also allows you to convince your creditors to accept less than what you owe them. By restructuring your debt, you will make lower payments over a more extended period.

A consumer proposal will remain on your credit report for six years from the date of your consumer proposal filing or three years after you’ve completed the proposal, whichever comes first. It can also impact your ability to obtain loans in the future.

Filing for Bankruptcy

Bankruptcy is generally considered a last resort for people who are deep in debt and see no way to pay their bills. Bankruptcy is a legal process through which individuals, businesses, partnerships with overwhelming debt loads may seek financial relief by stopping the legal actions of creditor, also known as stay of proceedings.

A Licensed Insolvency Trustee (LIT) can tell you whether bankruptcy is the right solution for your financial problems. LITs are qualified professionals who have been authorized by the Office of the Superintendent of Bankruptcy, and provide consultancy and services regarding bankruptcy to Canadians.

A trustee will help a debtor create a repayment plan with creditors, allowing them to keep most of their assets and wipe out debt completely in the future. However, a bankruptcy will remain on your credit report for at least six years. It can also impact your ability to obtain loans in the future.

Bottom Line

There are many options for debt management and relief for Canadians. However, make sure to take the time to research all the options and find a solution that will work best for you. By choosing one of the above options, you can start taking steps towards getting your finances back on track.