Guide To: Debt Relief - What are your options?

As the economy continues to recover from the Covid-19 pandemic, many Canadians are finding themselves in a financial crisis. From job loss to reduced working hours and wages, and high medical bills to mounting credit card bills. Fortunately, you can apply for small loans from direct lenders to help you settle some of the bills.

When you are getting multiple calls and letters from your creditors, late fees piling up, and double-digit interest rates making it impossible to cut down the balance, reducing your financial stress is always top of mind.

You don't have to feel bad; you aren't the only one facing the debt challenge. According to statistics, almost half of all Canadian employees are living paycheque to paycheque. This has pushed the average household debt to record high levels.

Today, 14.9% of the average Canadian's household income is being channeled towards debt repayment. Out of this, 7.3% (highest in nine years) of Canadians income is settling interest charges alone.

With more than 1.7 million student borrowers in Canada, the total student debt has hit $18 billion, with the average student loan debt being $26,075.

In a 2019 study by Credit Canada, 19% of Canadians with debt said they would need to liquidate their assets to help them pay off or reduce the debt. To help you break out of this debt burden, we need to look at debt-relief options available to you. Debt relief programs can involve:
• Wiping the debt out in bankruptcy.
• Persuading creditors to accept less the total amount owed.
• Getting changes in your payment schedule or interest rate.

While all these are effective ways to get rid of debt, not all are suitable for everyone. The best solution will depend on your financial condition and legal constraints. Curious to learn about these options? Read on.

• Do I Need Debt Relief?
• Debt Management Plan
• Credit Card Debt Relief
• Final Thoughts

Do I Need Debt Relief?

Debt relief is best suited to debtors who cannot pay off debt on their own or by negotiating with creditors. It can be sought for several reasons, ranging from medical bills to job loss. Debt relief programs involve negotiating with creditors, billing companies and debt collectors. Consider debt relief in Canada if:

   • You are behind on loan payments and credit card bills
   • You are struggling to afford your payments, yet you aren't behind on bills yet
   • You have tried to settle the debts but haven't made any progress
   • You have considered filing for bankruptcy

However, if you continue to add to your debt balances or aren't interested in making a long-term commitment to debt repayment, debt relief alone isn't enough. You also need to check on your spending habits that keep you in debt.

Debt Warning Signs

Debt problems often develop slowly over time, making it easy to ignore the problem until you are in big trouble. Several warning signs might indicate you have a debt problem and need assistance. Unfortunately, we often choose to ignore the signs. Here are some warning signs you need to look out for:

Struggling to pay bills - this is the first tell-tale sign. Settling even the minimum payments on monthly bills becomes challenging; you miss payments which results in expensive overdraft fees. You may find yourself transferring balances to manage credit card debt to survive. If that’s the case, consider an online emergency loan to keep afloat.

Stress, anxiety, and lack of sleep - Debt is a huge burden. It keeps us up all night which affects our concentration and productivity during the day. Debt has been linked to high blood pressure and the risk of suffering stroke. The Heart and Stroke Foundation of Canada recommends financial debt counselling if you are saddled with debt that negatively affects your health.

Arguing with your spouse or partner - debt issues and money problems are the primary reason why couples argue. It can lead to broken relationships, marriage and divorce. Keep your relationship strong by setting financial goals together with a partner or spouse.

Unending collection calls - if you are already receiving consistent and endless collection calls from your creditors, it's a sign you have a debt problem and need help. Putting your phone on vibration mode or ignoring the calls altogether is a sign debt collectors are over your head and are impatient to get their money back.

Debt Management Plan

Debt Management Plan(DMP) is a process credit counsellors offer which consolidates all your unsecured debts into one manageable monthly payment, with reduced or frozen interest rates.

A credit counsellor contacts your creditors and negotiates a settlement that meets your needs and satisfies your creditors. However, you are given up to five years to clear your debt. After making your fixed monthly payments to the credit counsellor, they then disperse the money to your creditors until you settle the debt. A debt management plan allows you to:

   • Make one monthly payment, reducing the hassle of juggling and prioritizing numerous debt payments, due dates, and interest charges.
   • Pay less interest since your credit counsellor negotiates with your creditors to reduce or eliminate the interest charges, making your debt more affordable to settle.
   • Clear path to debt freedom by providing debt repayment structure and strategy with a timeline to pay off your debt.
   • Access support and advocacy as your credit counsellor provides you with helpful tips on your debt repayment. They also ensure you get the best deal from your creditors.

Debt Relief Options

There are several debt relief options available in Canada. They are developed through combined efforts by the government, credit card companies, lending institutions, and individual debtors. While these options help alleviate your debt problem, they have different effects on your finances, credit report and history. They include:

Credit Counselling

Credit counselling refers to when a non-profit credit counsellor complies your debts and formulates a multi-year repayment plan for you. The credit counsellor offers you a debt management plan which allows you to pay your debts in a period of between three to five years.

Although a DMP isn't a form of debt reduction or cancellation, your credit counsellor negotiates with your debtors to reduce the interest rates, which allows you to settle your debt quickly without the high interests.

Debt Consolidation Loan

Debt consolidation is a new loan offered by a lending institution to pay off multiple small loans. By combining smaller loans into one easy-to-manage payment, you can make the debt payment automatic and more affordable.

Typically, a debt consolidation loan features lower interest rates and longer payment time. However, debt consolidation doesn't eliminate your loans; instead, it makes the repayment more manageable. You will need to apply and qualify for you to use this option.

Debt Consolidation Program

A Debt Consolidation Program (DCP) is an agreement between you, your debtors, and a third-party credit counselling company that provides non-profit debt relief. The counsellor negotiates with your creditors to:

   • Negotiate a lower monthly fee
   • Reduce or eliminate interest on your debt
   • Stop collection calls
   • Set a completion date to settle all your debt

When the creditors agree to the terms, you will make your monthly payment to the creditor, who will then disperse it to all your creditors on the program.

Debt Settlement

This is a plan set up by an individual and creditor to repay outstanding debts less than the total amount owed. Debt settlement is different from debt consolidation as you actively negotiate with each of your creditors to give you better terms and reduce your debt balance through lump-sum payments rather than settling them over time.

However, we don't trust nor recommend most debt settlement companies because most of them charge high fees to refer you to a permitted insolvency trustee to file for a consumer proposal.

Consumer Proposal

A consumer proposal is a legal binding contract in which you and your creditors agree to settle out your debt repayment by paying back a portion of your debts for up to five years. At the end of the contract, your debts are forgiven, and you can rebuild your credit score. This is usually the cheapest and safest debt relief option. Even with a low credit score, you always have the option of payday loans for bad credit from the comfort of your own home.

Personal Bankruptcy

When dealing with debt repayment, bankruptcy is deemed the last option. In Canada, filing for personal bankruptcy is a legal process controlled by the federal government. Personal bankruptcy offers debtor protection against creditors and a discharge of all debts at the end of the bankruptcy term.

Student Loan Debt Relief

As a way to cover college and university costs, many Canadians have taken on student loans. Unemployment, harsh economic conditions and unexpected life events are some of the reasons that might affect your student loan debt repayment plan. Fortunately, there are several debt relief options available if you are struggling to repay your student loan debt:

Repayment Assistance Plan (RAP)

A repayment assistance plan (RAP) is a great option to reduce your student loan payments. You can only qualify for a RAP if you reside in Canada, six months have elapsed since your completed school, and your loans are up to date. To learn more about RAP, visit the Government of Canada website.

Revision of Terms

The Revision of Terms plan allows you to extend the repayment period by up to 15 years. Although it reduces your monthly payments, you end up paying more interest since you will take a longer time to settle your loan.

Filing a Consumer Proposal

If you qualify, filing a consumer proposal can relieve your student loan debt. It's available under the Bankruptcy and Insolvency Act and offers a reliable debt relief option to avoid bankruptcy. You can pay a portion of your debt for five years, after which your student loan is forgiven.

Filing for Bankruptcy

Depending on your circumstances, you can file for bankruptcy to settle your student loan debt. To file for bankruptcy, you must be out of school for over seven years. However, before your creditor considers this an option, they will first assess other debt-relief options. You can take out quick loans to help you stay afloat during the filing period.

Credit Card Debt Relief

If you have credit card debts, there are several credit card debt relief options you can consider. However, before engaging your credit card company, familiarize yourself with the available options. You can also apply for bad credit loans and consolidate credit card debt. Below are the different credit card relief options:

Lump-sum payment agreement

If you have a considerable amount of cash available, you can negotiate with your credit card company to pay a lump sum of money, less than what you owe. For example, if you receive an inheritance or a bonus at work, you can use the money to offer a one-time payment in exchange for forgiveness of the total remaining balance.

Workout agreement

Under this option, your credit card company can be willing to reduce your interest rate, waive or lower the minimum monthly payment, or eliminate late fees in an agreed-upon plan. This option helps you reduce the overall debt and allows you to repay it in a shorter period.

Hardship payment agreement

If you have trouble paying a credit card debt due to job loss, illness, or another temporary hardship, this is a good option. You can arrange for lower interest rates and minimum payments, and you can suspend payments without penalty for a limited period. And while not every credit company offers this option, it's good to ask.

Final Thoughts

In this guide, we've discussed the tell-tale signs that you might be having a debt problem and the different available debt relief options you can use to settle your debt. We've also discussed how credit counselling agencies and debt management plans can play a role in helping you deal with your debt.

If you need a student loan debt relief, consider a repayment assistance plan, revision of terms, or file a consumer proposal to settle your credit card debt. Lump-sum payment agreement, work and hardship payment agreement are the several available options for credit card debt relief.

If you need easy, fast and safe loans for unexpected events like pet expenses, car breakdowns, or educational fees, check out iCash. Enjoy affordable interest rates and maximum repayment periods of up to 62 days. Sign up for iCash today and check out our website for more financial tips.

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