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You’re not alone if you’re feeling stressed about debt or that your finances are pinched. Canadians have seen their debt levels rising over the last few years, and the high cost of living is making it tougher to keep debt under control.
In 2023, Ipsos found that 46% of Canadians were carrying some kind of non-mortgage debt, and nearly half of those who are carrying non-mortgage debt find it stressful to pay it off.
There are many different signs that you could be deep in debt and need to seek out relief. These include:
- Carrying credit card balances over from month to month.
- Facing insurmountable interest rates from payday loans.
- Falling behind on your utility bills.
- Facing collection actions such as collection calls and wage garnishment.
If any of these scenarios resonate with you, you should know about your options for debt relief in Canada.
#1 Debt Management Plans
A debt management plan is a program offered by credit counselling agencies wherein they negotiate with your creditors to secure more favourable repayment terms. Usually, this means relief from interest charges. You still have to pay the full debt that you owe, but you can save money from interest charges if the plan is successful.
#2 Debt Settlement
With debt settlement, you negotiate with creditors to reduce the amount that you owe. This is not a program provided by the government, and it’s not the same as debt relief options that are legal procedures, but it is regulated through consumer protection laws.
Debt settlement can work well if you have a lump sum payment available that isn’t enough to cover all of your existing debts.
#3 Debt Consolidation
Debt consolidation is another way to save money on your debt without reducing what you owe. You combine multiple debts into a single loan with a lower interest rate. Despite the appeal of only having to make a single monthly debt payment, the single most important factor in the success of debt consolidation is the interest rate. Many transfer loans offer low or zero APR for a period of time before increasing. Make sure you crunch the numbers to find out how much you can save with debt consolidation if it takes you longer to repay your debts than the grace period offered.
#4 Consumer Proposals
Consumer proposals are regulated by federal law. They are legal procedures for discharging a portion of your debt. They combine some of the best features of numerous debt relief options. You only have to worry about making one monthly payment that is then disbursed to your creditors. You can benefit from a significant reduction in the principal that you owe.
Once your debts have been included in a consumer proposal, interest charges stop on what you owe, and you get protection from collection actions. Plus, none of your assets are at risk in a consumer proposal.
Consumer proposals will impact your credit score, but under the right circumstances, they can be removed earlier than a bankruptcy. They work well if you have a steady income but not enough to keep up with debt.
#5 Bankruptcy
Bankruptcy should always be considered a last resort. It can give you a fresh start by discharging you from most of your debt and provide relief from collections, but it can put your assets and investments at risk. Non-exempt assets can be used to satisfy your unsecured debts, and bankruptcy will have a long-lasting impact on your credit score.
Explore your debt relief options with a Licensed Insolvency Trustee who can walk you through the pros and cons of each method and how they relate to your financial situation.
Last Updated on by Milan Maity
