If you can’t pay your bills, you are not alone. Almost every Canadian reaches this point at one time or another in their lives. Like most of them, your bills get ahead of you and before long you’re using lower interest credit cards to pay off higher ones and borrowing from one place to pay off another. Then one day you realize: I’m in trouble and I need help figuring out how to get out of debt!
What are your best options for how to get out of debt in Canada?
The good news is that there are several really good options available to you. We’ll talk about them next. These options have been used by millions of Canadians, and they work. Imagine stopping those harassing calls and letters!
Here are your main options, in order of priority:
- Learn better money management
Create a budget, by listing all your monthly income and expenses. Analyze it to see if you can raise your income or lower your expenses. Use all the cash you free up to repay your debts.Realize that a lot of what you are buying is not necessary. Don’t waste your money by giving in to impulse buying. Get rid of most of your credit cards as soon as you can pay them off.Also, rebuild your credit rating, to get necessary credit more easily and at lower interest rates.You can get free help with budgeting and other money management skills, from a professional credit counsellor.
- Get a Debt Consolidation loan
Replace your unsecured debts with a single debt consolidation loan, with one monthly payment, a lower interest rate, and possibly a longer payment period. If like most people, you have much of your unsecured debt in high-interest credit cards, the lower interest cost will make it much easier to get back in the black.
- See a credit counsellor and consider a Debt Management Plan
A credit counsellor can help you build money management skills, and may negotiate with your creditors to set up a debt management plan, with a single monthly payment and lower interest costs, spread over up to four years.
- Orderly Payment of Debts (if you live in Alberta, Saskatchewan, Prince Edward Island, or Nova Scotia.
An Orderly Payment of Debts program can be arranged with your creditors, with a single monthly payment geared to what you can pay, lower interest costs, protection from legal actions, and extensive help to learn financial skills (available only in Alberta, Saskatchewan, PEI, and Nova Scotia).
- Make a Consumer Proposal to your creditors
A Licensed Insolvency Trustee can make a consumer proposal to your creditors, in which you make set payments you can afford for up to five years, which are distributed to your creditors. It may be a great bankruptcy alternative if you have more debts than you can handle, but a stable source of income.As soon as the proposal is filed, your creditors are prevented from taking you to court or garnisheeing your wages. They have 45 days to accept your proposal. Once accepted, a proposal is legally binding on all your creditors and stops all legal actions against you.In most proposals you end up paying no further interest on your debts, and you pay less than the full amount owing because your creditors would rather accept a deal where they get something than have you file for personal bankruptcy where they will get less.A proposal is better than bankruptcy for you too. You get to keep your house and other assets. At the end of the proposal period, your debts are discharged, and your credit is not as badly affected as in a bankruptcy.
- File for personal bankruptcy
Bankruptcy in Canada is your final option. If you cannot pay even a significant fraction of what you owe, you can file for bankruptcy, through a Licensed Insolvency Trustee.
What if I just stop paying?
You may feel so overwhelmed enough that you just try to carry on without paying, avoid answering the phone, and worrying about the next bill and not opening them. Of course, you know this will only make matters worse but it’s difficult to face reality, you keep hoping to make more money, but the interest just keeps you from getting ahead.
Here’s what happens if you stop paying:
- One payment missed: If you have a good borrowing history, your creditors may simply send you a polite reminder letter.
- Two payments missed: You will get a strongly worded letter, and possibly also a phone call, demanding payment.
- Three payments missed: Each creditor will enlist a Collection Agency to press you for payment. Collection agencies will make your life unpleasant, using a variety of tactics to get the money, including threats.
- If you still don’t pay, stronger methods can be used against you including wage garnishments.
Your best bet to make things better is to act immediately.