Make a Plan to Reduce Debt & Improve Financial StabilityFeb 06, 2015
Even though the holidays are long gone, debt does not take a holiday. In fact, the bills reminding of what is owed have probably just arrived. Consumers may be shocked at the balances on their statements. Although people are making regular credit card payments, it feels as though they are making little to no progress towards paying off the balances. However, with Canada’s prime lending rate being lowered, perhaps the next step should be consolidating debt.
In order to reduce debt, some consumers may choose to contact their creditors directly to negotiate a lower interest rate and continuing to make the regular payments. If this method proves to be difficult, consolidating debt may be the answer.
What is debt consolidation?
Debt consolidation can take on many forms and a few of them are as follows:
Home Equity Loan or Line of Credit is a loan in which the lender (bank), agrees to lend to a homeowner, a maximum amount using their home as collateral. How is this debt consolidation? You use this money to pay off your debts and only have one payment to make each month, at a lower interest rate.
Debt-snowball method is a debt reduction strategy, whereby a person who owes on more than one account pays off the accounts starting with the smallest balances first while paying the minimum on larger debts. Once the smallest balance is paid off, one then pays the next slightly larger balance above that and so on, and so forth, gradually getting to the largest ones later. Paying off smaller bills first can build your personal financial confidence and help to maintain your financial goals.
Debt Management Plan (DMP) is for people who are struggling with credit card debt. A DMP is arranged through a not for profit credit counseling agency. It is an agreement between an individual and their creditor(s) at a lower interest rate and paid off over time. Not all creditors have to participate in the program. Again, it is one monthly payment but there are set up fees and monthly fees associated with DMP’s.
Debt Consolidation means taking out one loan from a lender (bank or credit union), to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. This method is usually the last resort before filing for bankruptcy and involves a debtor lumping all of their balances into one lump sum, often lowering monthly payments and decreasing interest rates.
Consumer Proposal is an alternative to declaring bankruptcy. It is a formal, legally binding process negotiated with your creditors through a licensed Trustee in Bankruptcy. A consumer proposal provides you with immediate protection from debt collectors. In this process, the Administrator/Trustee will work with you to develop a “proposal” – an offer to pay unsecured creditors a percentage of what is owed to them, or extend the time in which you pay the debt.
In summary, debt can be stressful, but there are options to gain back control of your finances. Bankruptcy is always viewed as a last resort and our role is to find you the best alternative. We want you to take control of your debt and get back on the road to financial stability.