The cost of living crisis in Canada has resulted in unprecedented personal debt. There seem to be culprits everywhere: the cost of housing, rising grocery prices, student loans, gas and utilities, and out-of-control telecommunications bills.
As of 2024, roughly a quarter of Canadians are only financially able to make minimum payments on their credit cards, and another 22% are getting deeper into debt to cover basic living expenses.
If you’ve gotten deeper into debt than you’re able to pay back, it’s time to learn about helpful debt relief for Canadians. These are some of the best options available to Canadians.
Debt Management Plans: Getting Financial Guidance
With a debt management plan, you seek the help of a credit counselling agency. They will work with you on a financial plan that will enable you to repay your debt and attempt to negotiate with your creditors for relief on interest rates. A debt management plan can give you a clear picture of the steps and money you will need to pay it all back.
Debt Consolidation: Cut Down the Cost of Interest
With debt consolidation, you combine several debts into one at a lower interest rate. You might do this by getting a debt consolidation loan or a balance transfer credit card. Debt consolidation loans allow you to take control of your own finances without having to ask creditors. Reducing interest charges means that more of your money will go directly to reducing your debt.
Debt Settlement: Negotiating a Lower Repayment
This can be a trickier type of debt relief to pursue. Debt settlement involves negotiating a reduction in your debt directly with your creditors in exchange for a lump sum payment. If you’re in debt, you can probably already see the issue: finding a lump sum payment. In some cases, you may receive an inheritance or a windfall and try to make the most of the money.
Consumer Proposal: Insolvency Proceedings for Debt Relief
A consumer proposal wraps all of the benefits of the above plans into one:
- A reduction in the total amount of debt that you owe.
- Zero interest charges on the remainder of the debt that you owe.
- A single, fixed-monthly payment that you make to a Licensed Insolvency Trustee who distributes the funds to your creditors.
What differentiates consumer proposals from the above debt relief methods is that none of the other options above are regulated insolvency proceedings. When you or a credit counsellor on your behalf ask your creditors for debt relief through settlement or debt management, their cooperation is entirely voluntary.
A consumer proposal works somewhat differently. Your creditors have the option of accepting the terms of your proposal or denying it, but if creditors representing the majority of your unsecured debts agree, all of your creditors are bound by the proposal.
There will be a negative affect on your credit score, but only for three years after you have paid it off.
Bankruptcy: A Last Resort
Bankruptcy is best used as a last resort, but it is an option when you’re so deep in debt that other options aren’t viable.
Bankruptcy will discharge your unsecured debts and give you a chance to start over. However, it will come at a steep cost. When you file bankruptcy, your creditors are entitled to certain assets and some of your income to recoup their costs.
Bankruptcy can be more disruptive to your finances than a consumer proposal, but your creditors do not get to vote on it.
Debt relief options can help Canadians get back on track financially. Make sure you know about all of your options.
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