And some you can!
If you’re swimming in debt, you’re hardly alone. According to a report published by CBC Canada early this year, the average Canadian citizen spends approximately $1.77 in debt for every dollar of disposable income received. While this is a slight decrease, it’s still no reason to smile as a majority of Canadian income is still going to debt repayment. Fortunately, we live in an era of solutions. If you, like many Canadians, are drowning in debt, there are steps you can take in Nova Scotia to put what you owe to rest. Outlined are some of the best approaches you can take currently
Debt can be a symptom of any number of problems and life circumstances. However, it is important to understand that YOU ARE NOT YOUR DEBT.
At 4 Pillars Halifax, we'd love to discuss how we can help you become debt free.
Debt Relief Steps You Can Take On Your Own
Outlined below is a list of steps you can take yourself to improve your debt situation
- Debt Consolidation
Debt consolidation is a popular DIY option among debtors. It involves taking one new loan and using it to pay off all your smaller loans. For instance, if you owe a total of $30,000 on multiple credit cards, you can try to borrow a $30,000 debt consolidation loan. You can borrow from a bank, a credit union, or your home equity and pay off all your credit card debts. You’ll then be left with only one loan to pay off. This is much easier as you don’t have to worry about keeping up with different repayment dates. It’s also ideal as the total interest you’ll pay on one huge loan is less than what you’d spend paying different lenders.
- Direct Negotiations
If your credit score is severely damaged, and you have access to a lump sum of cash or a high income, you may be able to negotiate directly with your creditors. In this case, you can try direct negotiations with your creditor(s). During the negotiations, you and the creditor craft an informal agreement. You can either agree to pay off your debts in bits, or make one lump sum payment, which settles most of what you owe them, and then the rest is forgiven. For instance, if you owe a creditor $10,000, you can have direct negotiations and ask to pay $6000 in one payment, and in exchange, they let go of the remaining $4000. While direct negotiations are a great way to ease your debt, the majority of creditors usually reject these kinds of settlements. In that case, the only other DIY option is the one shown below.
- DIY Debt Management
If none of the above appeals to you, then you can try debt management the ordinary way. This involves cutting on your spending, avoid taking out more credit cards and finding an extra source of income. You also need to channel all the funds you make from your side hustle as well as a percentage of your primary income to debt repayment.
Doing this consistently will help you get rid of your debt and allow you to focus on building your credit. However, note, this is often easier said than done. It involves making sacrifices on lifestyle, being self-motivated, and a lot of financial discipline. Additionally, it’ll take a while. So if you’re looking for a quick way out of debt, you may find the options below more suitable.
Debt Relief Steps You Can’t Take on Your Own
A consumer proposal is a legal debt forgiveness option regulated by the Bankruptcy and Insolvency Act. It involves negotiating with a creditor and crafting a repayment proposal ideal for both parties. Some of the factors that determine the amount you’re going to pay in a consumer proposal include income, household size, and provincial exemptions. Legally this process requires the services of a Licensed Insolvency Trustee. Their role is to administer the process. A consumer cannot file a proposal without one.
Therefore, long before you determine how much you wish to offer creditors as a settlement, you should seek professional advice to conduct a client assessment to determine your current situation and whether you’re an ideal proposal candidate. They will help you carry out a hypothetical bankruptcy value calculation, which, as the name suggests, hypothetically tells you how much you’d end up paying if you were to file for bankruptcy. This calculation takes into account surplus income obligations as well as provincial exemptions. You then determine how much you’re going to offer to creditors based on the results of the calculations. What you payback also depends on the type of creditors, how much you owe them, as well as circumstances surrounding your debt problem.
That said, some creditors are often quite challenging to negotiate with, this is why it is important to have unbiased advice for your situation. This is a service 4 Pillars offers. While you can always file a consumer proposal without your own advocate, it’s wise to have expert help. This will help ensure you don’t end up being forced into bankruptcy or paying to much back when it’s avoidable. We wrote a mega article on consumer proposals here.
Bankruptcy refers to a legal debt relief solution that involves willingly giving up (or paying to retain) your non-exempt assets to a trustee who then resells them and distributes the proceeds to creditors. The cost of bankruptcy depends on household income and size, type of assets as well as whether you plan on retaining your assets. Learn more about bankruptcy here.
Other than surrendering (or paying to retain) your assets, you’re also expected to submit your monthly income and expense reports. These are used to determine your surplus income. While bankruptcy is a quick way to get out of debt, it’s vital to note it’s not an easy way out and can be costly. The total cost of the entire process depends on the cost of the trustee fees, surplus income payments, and the amount you’ll need to buy back or retain any assets you wish to keep. If you’ve never been bankrupt before, your bankruptcy period should be between 9 and 21 months. But if you’ve been in this situation before, it’s generally between 24 and 36 months.
Even though bankruptcy seems like a scary proposition in which one loses all their assets, it’s not, and you’re not going to lose everything. In fact, you only lose what you choose to surrender or can’t afford to retain. No one can force you to file bankruptcy. Again, while you can handle part of the process alone, you will always need to file bankruptcy with a trustee. Filing bankruptcy yourself is not possible. In our opinion, it’s wise to have an expert by your side or seek expert advice first, so you can wisely select what to give up and review all other options. This is because, in some situations, retaining an asset might be wiser than giving it up and vice versa. In some cases, you may not even need to file for bankruptcy, and if you don’t seek expert help, you’ll never know.
Conclusion: Should you navigate the debt relief options yourself?
Being in debt can wreak havoc on your life. Constant calls and threats from creditors are enough to take away a good night’s sleep from you. Fortunately, you don’t have to wait until it becomes that bad. All the options above might be suitable depending on your situation. That said, don’t hesitate to get expert help so you can know which option suits you perfectly.
This article was written by David Moffatt. A Senior Debt Relief Specialist with 4 Pillars Halifax. 4 Pillars has assisted in creating plans that have helped save Canadians over $1 Billion dollars of consumer and tax debt since 2002. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring plans can help you cut your debt by up to 80% with less than 3% of our clients ever getting into deep financial difficulties again. If you are struggling with debt please reach out. It hurts to continue to suffer financially.