Consumer Credit Proposals and 3 Other Ways to Get Out of DebtJan 19, 2016
There are many ways to get ahead of debt, from credit counselling to a consumer credit proposal, but it’s important to be wise when it comes to finding a reliable debt company. The debt industry is not fully regulated, and therefore, you could end up paying quite the price to pay off debt.
Finding a reputable debt professional will help you pay off debt without incurring further interest charges, fees and stress. Let’s take a look at some of your debt options.
How can I get you a loan?
Debt consolidation loans are often an affordable way to combine debts such as credit cards, personal loans and payday loans. You must first qualify by providing monthly income statements to prove you can manage a monthly loan. Keep in mind that not all consolidation loans are equal and you should consider these things when shopping around:
- The interest rate on your consolidation loan should be lower than the interest rate on your debts. This can ensure you will be able to pay your debt back more quickly by paying less interest.
- A popular type of consolidation loan is a home equity line of credit. This adds your other debt balances to your mortgage and renegotiates the interest rate.
- Once you’ve consolidated your debts, it is important to avoid further debt. A good suggestion would be to cut almost of your credit cards and keep only one or two with low credit limits to prevent frequent use.
Consumer proposals for all kinds of credit
A consumer credit proposal is often used as an alternative to bankruptcy. It is a negotiation with creditors on your behalf by a Bankruptcy Trustee. You will be required to repay a portion of your debts over a maximum of 5 years.
Consumer proposal benefits include:
- You are able to keep all of your assets
- You may only be required to repay a portion of debts
- No fees other than your monthly debt payment
- You can avoid bankruptcy
- You’ll be able to receive debt consolidation, even with bad credit.
How to find the best credit counsellor
Credit counselling in Canada is an unregulated service—credit counsellors don’t require any licensing or training. This makes finding a reputable agency important, to protect yourself from paying unfair fees. Credit counsellors can advise you of debt options, negotiate with creditors to lower interest rates, and can create a debt management plan, where you would make a consolidated monthly payment toward your debt. Here are a couple of tips to find the best credit counsellor for you:
- Avoid paying any up-front fees before services are delivered. Always ask for a full disclosure of all fees involved before signing a contract.
Ask credit counsellors what specialized training or relevant education they have. You can also inquire about programs that will help avoid further debt.
The difference between bankruptcy and a consumer proposal
Consumer proposals are one of the leading alternatives to bankruptcy in Canada. One major difference between bankruptcy and a consumer proposal is that a consumer credit proposal doesn’t require your assets to be sold in order to pay off your creditors. Bankruptcy is often used as a last resort, but it may be necessary for some Canadians who are struggling to deal with debt. A few things you should know about bankruptcy:
- Bankruptcy absolves most debts, but secured debts and court-ordered debts cannot be included in bankruptcy proceedings. These include mortgages, car loans, child support or alimony payments.
- Student loan debt cannot be included in bankruptcy unless you’ve been out of school for 7 years or more.
- Bankruptcy only applies to the individual who files. However, if you’ve co-signed a loan with someone, that person is responsible for those joint liabilities.
- Bankruptcy remains on your credit report for six years after you’ve been discharged, which will make it difficult for you to obtain credit.
Comparing your debt options can help you determine what the best solution might be for you. The Better Business Bureau website is a good resource when navigating reputable debt companies so you can find debt relief this January. You can also compare your debt options with our debt repayment options calculator. Debt consolidation, if you have bad credit, can be a great way to begin the new year and start off on the path to financial stability.
Have you resolved to pay down debt this year? Connect with other Canadians and join the conversation on Twitter to learn more. Search the hashtags, #BDOdebtrelief, #Mythbusters, #LetsTalkDebt