You don’t have to live with debt forever: Your options for debt relief

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There are many reasons people get into more debt than they can afford to repay. Debt can come from a business venture that didn’t last, an extended period of unemployment, the unexpected costs of a divorce, or just struggling to keep up with the rising cost of living on an income that won’t keep pace with the rest of the world.

No matter how you got into debt, you don’t have to live with it forever. For some, paying back debt on their own is a process that could take years and cost an enormous amount of extra money in interest charges.

Take credit card debt as an example. Let’s say you had a credit card with a $10,000 maximum and a relatively standard 20% interest rate. You reach your limit and decide to pay it all off without adding new debts, but you can only afford to make minimum payments. It could take you nearly 29 years to pay it off and wind up costing you over $16,000 with interest payments in the end. While it usually makes sense to pay more than the minimum, if you have multiple debts like this one, that’s not always possible.

What can you do about debt instead of struggling to pay it off for years to come? There are debt help options that save you money and get you out of debt sooner.

Bankruptcy: A last resort

Filing for bankruptcy shouldn’t be your first option, but it is available to you when no other options remain. With bankruptcy, you are discharged from your unsecured debts, but your creditors do have a few opportunities to recoup some of their costs. There are two mechanisms for them to do so:

• Creditors are entitled to a number of your assets, including savings, investments, or second properties.
• Creditors may also be entitled to some of your income above a certain threshold, depending on your household size and how much you earn.

Find out how to file for bankruptcy in Canada if you don’t have other options. Start by reaching out to a Licensed Insolvency Trustee, as they can help you file bankruptcy or find a better alternative.

Consumer proposals: An alternative to bankruptcy

A consumer proposal is often a better alternative to bankruptcy. It will discharge you from a large portion of your debts without compromising any of your assets. If you have an income available to repay some of your debt, it’s often the better option.

Under a consumer proposal, you make just one monthly payment with no interest charges. All of the money goes toward repaying the principal. The monthly payment doesn’t change, even if you start earning more in the future.

Credit counselling: Guidance, budgeting and other options

In some cases, insolvency proceedings including consumer proposals and bankruptcy are not the best option. The impact on your credit history can be an issue, and you may want to look for other options, even if they are less effective than a consumer proposal.

A credit counsellor can help you create a budget that will let you pay off debt faster or pursue options such as a debt consolidation loan or debt management plan, both of which can help you reduce the interest that you pay.

You don’t have to stay in debt forever. These debt relief options can help you find an alternative that saves you time and money.