I know I am a little slow to post this…life always seems to take over and this seems to be the thing I put off…
I was thinking that I should probably have saved my debt focused blog until after Christmas as that might be when people are thinking about debt repayment more. I’m a lady of my word I promised that my next post would be about debt repayment. Hopefully if we discuss it all now it will make people think before buying too much on credit this year…obviously the first thing to say when talking about debt is AVOID IT! Now that I have gotten that out of the way lets be more practical and discuss what to do with it once you have it.
If you find yourself not getting ahead due to various bill payments there are a few different options to consider. The best thing to do is to consolidate your debt into one loan so you have just one payment to go with. You can talk to your bank and see if you qualify for a loan. If you can back your loan with some sort of security (car or a house) you will be able to get a better rate than if you have no way of providing security to your loan.
If you have a property, you could refinance your mortgage in order to get some extra money to pay off your debts. This is a great option because mortgage rates are at all time lows so you will likely be getting a rate much lower than any other loan you might get. Unfortunately this is not always an option. On a refinance you can only access 80% of your property’s current value. So if you already have a mortgage, and you have only had your property a few years it might be too soon to do a refinance. Therefore you might not have gained enough value in your home to take money out. You also might face penalties for breaking your current mortgage as well as the possibility of legal fees to complete the transaction. These are all important factors to consider when deciding whether it is worthwhile for you to do. Talk to a mortgage professional like myself to decide if the numbers work and if it is worth your while.
Now that we have discussed the most common options on getting your debt under control lets discuss the other options…
There are debt consolidation companies out there that will help you before you get to bankruptcy. If you are behind on your payments and your suffering, you can contact these companies and they will negotiate settlements with your creditors and help arrange a debt consolidation loan for you. Your interest rate on the loan will be high but it will likely be lower than the interest rate you pay on your credit cards. They will charge you a fee for all the work they do. The fee will be a percentage of the amount they save you when they negotiate your settlements. This is a great option to help you start over before you really get into trouble. It won’t show up as a bankruptcy or a consumer proposal on your credit bureau. It will just show up as your accounts are paid.
It is important to note that for any of the above options you need to qualify and have a steady income that affords you the basics of life after you pay your bills.
Another less attractive option is a consumer proposal. What is a consumer proposal you ask? It is a binding legal agreement made between a person and their unsecured creditors. If you owe less than $250,000 in unsecured debt (not including you mortgage) and cannot reasonably pay your unsecured debts in a timely manner you might qualify. If you go this route, you will have a licensed bankruptcy trustee negotiating a reduction in the amount of debts you owe to an amount you can afford as well as set you up on a plan that allows you to pay the debt off in 5 years or less. It also means you can keep your home as long as you make your mortgage payments.
The main difference between a proposal and a bankruptcy is that bankruptcy eliminates your personal unsecured debt whereas a proposal sets you up with a plan to pay your debts off. With bankruptcy you will most likely be required to surrender most assets if not all assets (including your house) in order to pay off your debts. Bankruptcy may be quicker and cost you less in fees but it will cost you more in the grand scheme of things as it will wipe your credit history to zero. It means you will have to start over and take years to repair your credit enough to get a mortgage or a loan.
If you have claimed bankruptcy or have gone through a consumer proposal you will find it hard to get a credit card which should be your first step in starting over. You can go to your bank or talk to someone like myself to arrange a secured credit card. You will be required to put down a deposit as security on the credit card. The deposit is often double of what your limit will be on the credit card. For example if you want a $1,000 limit you will need to give the lender $2,000 as a deposit to qualify. They will hold that money in a term deposit or GIC for you until you qualify for a credit card the conventional way. This is a necessary evil when starting over. It also helps you start off slowly and help you get on track with your spending habits.
There you have it! I know this isn’t as short and sweet as my last post but I hope you still found it to be valuable information. I am happy to provide any one with specifics on where to go or who to talk to about debt management programs or anything else discussed above. Just msg me and we can discuss further! As always, any feedback is appreciated!