Tips to help you cope with debt

Drowning in debt?  There are options for creating an affordable plan to reduce your debt to a manageable level.

Owing money can have a huge impact on your well-being. Canadian consumer debt is now at a record high – with more and more people having to cope with falling behind on their payments.

If your debt is out of control, you can often feel alone. But there is help. One of the first things you should know is that creditors don’t want to see you fail. The biggest mistake people make is not talking to their bank and creditors.

There are a number of things you can do to reduce debt, including having a plan that will help lower your monthly charges and make debt more manageable.

Each province in Canada offers a number of free debt-counselling services. These organizations can negotiate with the creditors on your behalf. They have experience in dealing with people who are in the same position as you are.

Consolidation: Combining all of your existing, unsecured debts into one consolidated loan with lower repayments is often a good solution – and your credit record will not be affected.

An informal proposal: Creditors will often accept lower payments or settlement fees after you’ve had trouble paying. This method is often the best solution for smaller overall debts of $15,000 or less. The drawback is that it could affect your credit rating.

A consumer proposal: This is similar to an informal proposal but consists of a legal agreement between you and the court. Creditors are unable to take action against you while you’re bound by the agreement. Creditors will often accept less to settle. In some cases creditors have taken as little as 20 per cent of the total owed. By law, your credit rating will be affected for three years.

Bankruptcy: Many Canadians who seek the services of a debt counsellor think that bankruptcy is the only course of action, but it’s actually the least used out of these methods. It should be seen as a last resort, after you’ve exhausted all other options. While it will erase all of your debts, it will affect your credit rating for six years after you’ve been discharged from bankruptcy.

Whichever method of debt management is right for you, you’ll find that it’s a huge stress relief when you agree to a new, more manageable plan.