If you find yourself in need of debt help, you are not alone.
Maybe you’re still reeling from a holiday season. The financial impact of overextending ourselves – particularly when we’re already stretched thin – lingers on well after the festivities end.
Or perhaps you’re feeling the pinch as a result of unforeseen household costs, car repairs, or illness that has kept you off work longer than expected.
Whatever the reason, you’re reading this post because you find yourself in need of help with debt reduction. This realization is the first step to eliminating your debt. The second step is to get help.
But what type of assistance do you need, and how can you get it? Here are 5 ways to get debt help in Manitoba, as well as their respective pros and cons.
#1. Reduce the debt on your own.
If you believe your debt is manageable, you can develop a plan to pay it off. There are plenty of free resources online that might help, such as budgeting worksheets and debt calculators. Perhaps you simply need to actually see what’s coming in and what’s going out in order to understand where you can cut back.
This probably isn’t an option for those of us that are not financially savvy or where the debt has already spiraled out of control. At that point, most of us need outside help to resolve our debt.
#2. Borrow money from friends or family.
Depending on how much debt we have and the amount our close contacts are able to lend, borrowing from loved ones is an option to which many people turn. However, inevitably, close relationships become strained when it comes to money owed. It may even be enough to destroy the bond entirely. Unless your family member or friend can afford to gift you the money, this is rarely a good option in the long term.
#3. Enter into a debt management plan.
Credit counselling agencies will, for a fee, help to negotiate your debts – on your behalf – with your creditors. You’ll still end up paying the entire amount of the debt owed, but if successful, your creditors may agree to reduce or eliminate the interest rate and/or give you more time to repay the debt in full. So how does it work? You pay your credit counsellor, and your credit counsellor pays your creditors.
Note that this option is not legally binding and it is completely voluntary on the part of your creditors. So let’s say you’ve entered into a plan with one creditor. You’ll still need to repay any other creditors that opt-out of the plan. This option is not for you if you cannot repay the entirety of your debt.
Finally, be wary of the promises some of these agencies make. Their industry is almost completely unregulated, and many people find themselves worse off than when they began the process.
#4. Negotiate settlement of your debts.
There are companies out there that will contact your creditors and negotiate the settlement of your debts for less than what you owe. Here’s how it works. You enter into a contract with the debt settlement company and begin paying a monthly sum directly to them instead of paying your creditors. The debt settlement company holds these monies in an account until they get a lump sum that is big enough to offer a settlement of your debt to a given creditor.
Do you see the strategy? You’re not paying your creditor directly, so your creditor receives nothing until it strikes a deal with the debt settlement company. That lump sum, which is less than the full amount you owe, might look good to your creditor because the alternative – receiving nothing – isn’t as appealing.
So what’s the problem? During this period of non-payment to creditors, your credit score will suffer greatly. That’s because you’re not making any payments to your creditors at all. Also, you will need to deal with one creditor at a time, since your lump sum is being saved for one debt at a time.
Additionally, a creditor that’s not being paid may elect to send your debt to collections. Since you have no legal protection, enforcement of the debt may be brought against you – through wage garnishments, a lawsuit, etc. At this point, you have already paid a substantial amount of money, and the problem is still not solved, in fact, it has gotten worse.
As a final note of caution, many individuals working in debt settlement companies hold themselves out as credit counsellors when they have next to no formal education or credentials. They also charge you fees upfront and a percentage of the debt before they even attempt settlement with your creditors. For these reasons, perhaps your best debt relief option is to reach out to a Licensed Insolvency Trustee.
#5. Contact a Licensed Insolvency Trustee.
Arguably the best financial advisors in the country, Licensed Insolvency Trustees (LITs) are licensed and regulated by the Canadian government. Not only are they required to adhere to strict rules when it comes to the provision of debt services, but they have the extensive education and practical training needed to help you with your finances.
This means you will get the best and most ethical financial advice to help you get out of debt.
LITs offer the full range of debt relief options, from budgeting, money management, financial counseling, and advice on debt consolidation all the way to consumer proposals and bankruptcy. In fact, they are the only professionals licensed and authorized by the Canadian government to assist debtors with consumer proposals and bankruptcies.
What’s a consumer proposal?
Consumer proposals are designed for those debtors who want to pay back their debts but are unable to do so in full, or need a significant time period to do so. You will meet with your LIT and together develop a plan built around your unique situation, your family needs, your income, and your ability to pay. Your LIT will then make a proposal to your creditors based on what you have decided. If accepted, you may pay back only a portion of the debt you owe over a period of time, up to five years. When the proposal is completed, all the payments made within the agreed up timeframe, all of your unsecured debt is eliminated. What’s more, you will not be paying for the LIT’s services upfront. LITs are paid through the settlement, and only when creditors receive payment.
Consumer proposals are usually the best solution for people who have a secure, long-term source of income, do not need to get out of debt quickly, and have assets which are not exempt from seizure by the creditors.
What about bankruptcy?
Bankruptcy is another way for honest, hard-working Canadian debtors to get relief from the financial pressures of overwhelming debt. If you qualify for bankruptcy, your credit card balances, unsecured personal loans, unpaid taxes, and payday loans will be completely extinguished, typically within 9 months if it’s your first bankruptcy. You will be required to keep track of your income and expenses during the bankruptcy, and to attend two financial counselling sessions. If you have more income than the government of Canada has deemed necessary for a family your size, you will be expected to pay half of the excess income to your LIT for the benefit of your creditors. Most of your assets will be protected — things like your personal effects and household furnishings, your RRSP’s and registered pensions, some cash on hand, some equity in your home, and your tools of trade, including a motor vehicle. If you have other assets that are not protected, they may be sold, again, for the benefit of your creditors.
Bankruptcy is usually the best solution for people whose income may not be secure in the long term, who are expecting changes in their family needs, or who need to get out of debt quickly for any variety of reasons. A bankruptcy will generally be less expensive and take less time to complete than a consumer proposal.
What’s so great about consumer proposals and bankruptcy?
The best part about these two debt relief options is that they can improve your financial situation almost immediately upon filing. You see, in Canada, consumer proposals and bankruptcies are legal processes that protect you from your creditors.
So the moment you file a consumer proposal or bankruptcy, an automatic Stay of Proceedings takes place. This means that your creditors must not contact you directly to recover the debts you owe. It puts an end to collection calls, wage garnishments, frozen bank accounts, and lawsuits.
Get The Debt Help You Need Today
Getting debt help today will almost certainly make for a better financial tomorrow. In fact, the sooner you get help, the more options you may have available to you.
It is our mission to help you experience the best financial health you possibly can. At your free initial consultation, we’ll review your financial circumstances and explain each and every debt relief option available to you. You’ll also get our experienced advice on which might be the best for you and your family. Let LCTaylor help you achieve the financial freedom you seek. Call us at 1.800.463.8371. We look forward to hearing from you.