Deep in Debt? Here are 5 Ways Out
Few things are scarier than realizing there is no way in Hades you're going to be able to get yourself out of debt. You're drowning in bills, final notices and angry calls from creditors. You're staring at numbers that just don't add up. And, you feel like there's no possible way out, except for maybe declaring bankruptcy or fleeing the country—permanently.
However, as desperate as your situation may seem, those aren't your only options. There is help out there, and it doesn't involve a humiliating phone call to your rich Aunt Myrtle. With a host of resources available in Canada, you needn't navigate the treacherous waters of debt repayment alone.
Google "How to Get Out of Debt" and you'll find numerous companies eager for your business. It's essential, though, to make sure you know what you're getting into before enlisting anyone to help free you from your debt overload.
Here are five options when it comes to escaping your personal financial nightmare:
1. The Financial Consumer Agency of Canada
This independent regulatory agency was established by the feds in 2001 to "protect and inform consumers of financial products and services." Because part of its mandate is to educate Canadians, it's a good first step when you're figuring out what options are available to you. There are plenty of free and useful resources here, like mortgage calculators, budgeting tools and info on understanding your credit score. As well, there are tips on dealing with financial institutions and other players in the debt game, and information about your rights throughout the process.
2. Debt Management Through a Credit Counseling Agency
With these agencies, you can get one-on-one counseling concerning things like how to use credit wisely and how to improve your credit score. More importantly, for the deeply-indebted, they can also enroll you in a debt management program. This means the agency will contact your creditors and work out a manageable plan for repayment, sometimes at a lower interest rate. You pay the agency, and they pay the creditors. It's important to discuss any fees that might be involved before you sign with any agency, and research the company to make sure it's reputable. Check with your province's office of consumer affairs, as well as Credit Counseling Canada, the industry's national association website.
3. Debt Consolidation Loan Through a Financial Institution
Another option is to consolidate your debts through a bank or consumer finance company. You will pay only one payment each month instead of having multiple bills rain down on you. However, be warned—you may end up with a higher interest rate, and have to put up assets as security for the loan.
4. Debt Settlement
This is a relatively new option in Canada. These companies claim they will talk to your creditors and negotiate a deal to cut your debt down, so that you will only have to pay 60%, 40%, or even 20% of what you owe. However, the FCAC recently issued a warning about this type of company, saying "If an offer to reduce your debts seems too good to be true, it probably is." Watch out for high-pressure sales tactics and up-front fees, warns the FCAC, and check out any company with your local Better Business Bureau before agreeing to anything.
5. Proposal Under Canada's Bankruptcy and Insolvency Act
Declaring bankruptcy is always a last resort because it means you will have to give up assets and it can affect your ability to get credit for six years. However, there is another way to get out from under debt without declaring full-on bankruptcy. A bankruptcy trustee (find one in your area) can make a formal "proposal" to your creditors under the Bankruptcy and Insolvency Act. You and the trustee put together a meaningful repayment plan for all, or a portion of the debt, in a time period you can handle. Creditors will frequently accept your proposal, because it's a better deal for them than if you declare bankruptcy.
Written by Shelley White