Archive for the ‘Debt Consolidation Loan’ Category

If you have too much debt, there are five options for eliminating debt.  Here’s my short video explaining your debt management options:

I explain these five debt busting options in the video:

1. Personal budgeting: Make a budget, and pay off your debts on your own.  (I’m not a big fan of budgeting, since it’s hard, so you can read my post on why budgeting is a bad idea, and what you can do to manage your money without budgeting).
2. Debt Consolidation Loan: A debt consolidation loan is a loan used to pay off multiple smaller debts. It allows you to combine multiple payments into one smaller monthly payment, generally at a lower interest rate and spread over a longer period of time. Of course debt consolidation doesn’t reduce your debt, unless you can pay more towards the principal each month.
3. Credit Counselling: A credit counsellor can negotiate repayment plan where you pay your debts in full, but at a reduced interest rate. This is called a “Debt Management Plan” and works well if you can repay your debts in full.
4. Debt Settlement: A debt settlement is an arrangement negotiated with a creditor where you pay a portion of the amount owing. If you owe $20,000, you could offer to pay $8,000 as a lump sum to settle the debt, or you could offer to make payments over time. If the debt is old, and if you have a lump sum of money, this may be a viable solution. However, if you have many debts, you must reach an agreement with each creditor, which may not be possible.
5. Consumer Proposal: A consumer proposal is a legally binding settlement between a debtor and a creditor. It typical involves the debtor making one monthly payment, on an agreed upon settlement amount, over a period of no more then 5 years. At the end of the proposal period the debtor is then released of any remaining balances, which may be left from their original amount of debt.
6. Bankruptcy: In an Ontario bankruptcy an individual surrenders certain assets to a trustee, in order to be absolved of their debts. They are then legally declared bankrupt and required to adhere to the duties of a bankrupt, in order to obtain an absolute discharge, at the end of their bankruptcy term.

November 14 to 18 is Credit Education Week in Canada, and I must admit I have mixed feelings. I strongly agree that Canadians need more education about credit, and debt, so anything we can do to help educate Canadians is good. However, I also wonder who should educate Canadians about credit.

Credit Education Week, according to their website, is sponsored by many financial institutions, including Capital One (the Platinum Sponsor), and three of the big banks (RBC, TD, and BMO). Other sponsors include OLG (who operates our lotteries and casinos; I’m not sure what they have to do with credit), a large payday loan company, Credit Canada, and three bankruptcy firms.

There are what appear to be many good conferences to be held during the week. According to their schedule, there will be a Money Management and Budgeting Workshop Monday to Thursday at the Family Counselling and Support Services for Guelph offices. We have referred hundreds of people over the years to Family Counselling in Guelph for credit counselling. They are a great organization, and I’m glad they are involved.

I must admit, however, that I do get a bit of queasy feeling when I see big banks and credit card companies sponsoring Credit Education Week. Don’t banks and credit card companies want us to borrow? Yes, of course they do, that’s how they make their money, but I guess they would tell us that they want us to borrow responsibly, and that’s why they sponsor Credit Education Week.

I think my queasiness is really caused by the use of the word “Credit”. I don’t like that word. Credit is a positive word, like “giving someone credit for a job well done.”

I prefer the word “debt”, because that’s really what we are talking about. I think we should call it what it is: “Debt Education Week”, but I assume the banks would not want to sponsor something that negative.

I also worry that the advice might be somewhat one-sided. If you call us here at Hoyes Michalos and ask us to explain your options, we will explain all of your debt management options. We’ll talk to you about budgeting to cut your expenses to pay off your debt on your own. We’ll talk about debt consolidation loans, credit counselling, debt settlement, consumer proposals and bankruptcy. Do the banks that sponsor Credit Education Week want you to know about consumer proposals and bankruptcy? I doubt it. They would be much happier if you paid in full, or if you did a debt management plan.

Of course we only make money from you if you file a consumer proposal or bankruptcy, so why do we explain all of your options? Two reasons:

First, we want you to find the right solution, even if we don’t make any money from it. We’ve been in business since 1999, and a big portion of our work comes from satisfied people we have helped, so we know that by explaining all options we will continue to grow.

Second, it’s the law. We are licensed by the federal government, and Directive No. 6R3 requires us to “discuss the options available to debtor for resolving financial difficulties”, including “non-legislative debt settlement arrangements” which includes debt consolidation, credit counselling, debt settlements, and budgeting.

So, when you meet with us, we tell you everything, as I explained on the radio a few weeks ago:

So what’s my point? Am I against Credit Education Week?

No, I support Credit Education Week. But to answer the question “who should educate Canadians about debt?” the answer is NOT the banks, or bankruptcy trustees, or credit counsellors, because we all have our own biases. Credit counsellors make their money from debt management plans. Bankruptcy trustees make their money from consumer proposals and bankruptcies, so those are the options we will emphasize.

The answer, I believe, is that the best person to educate you, is you.

Do your own research. Go to some of the Credit Education Week sessions, but also do your own research. Read many points of view.

For example, Gail Vaz-Oxlade, host of TV’s Till Debt Do Us Part, and Princess, believes that during Credit Education Week we should all stop using our credit cards. That’s an interesting idea, and probably not an idea you will hear at a bank-sponsored event. I don’t agree with everything Gail says, but I do love her “no-nonsense” style, so when you are doing your research stop by her blog post where she suggests we should school, which means teach lenders not to lend to people who can’t afford it.

In an interview on CBC she tells the story of a young man, earning $21,000 per year, who got $15,000 in credit from a big bank. You can watch the interview on CBC. The only solution for this person was to, you guessed it, file a consumer proposal.

You won’t see Gail Vaz-Oxlade speaking at Credit Education Week, delivering her message of personal responsibility, and looking out for yourself.

Too bad, because looking out for ourselves is the best answer.

So here’s my challenge to you: assume this week is Debt Education Week, and make it your personal goal to learn as much as you can about the ways to deal with debt. Learn how banks make money, and research the role played by credit card companies, debt consultants, credit counsellors, and bankruptcy trustees. Review your debt options, and then decide what option is best for you.

When considering your options to deal with the debts you have, many people will first explore the idea of a debt consolidation loan.

A debt consolidation loan is a loan that a financial institution will give you that allows you to group together other debts by paying them off with the loan.  For example, if you have three different debts that total $15,000 a loan company may give you a loan for $15,000 and you would use the loan to pay off the three debts with.  You’re replacing three old debts with one new debt.

Debt consolidation loans have some advantages:

• Because you now only have one payment to make, it should be easier to budget
• If the interest rate on your loan is lower than the interest rates on your credit cards, then it should save you money in interest payments
• By combining three interest rates into one, your overall monthly payment could be lower 

However, they also have some disadvantages:

• A debt consolidation loans are becoming increasingly difficult to obtain.
• You may need a co-signor. If you do, you’re now bringing someone else into the responsibility of your debt problems
• You may need to put something up as security such as your house. If consolidating debts through a second mortgage, your house will now be at risk if you don’t keep up with the payments
• The lender will want to see you have a steady income, employment and a good credit rating before considering whether or not to qualify you for the loan.
• Some financial institutions may qualify you for a loan, but at a high rate of interest.
• Debt consolidation loans require discipline. If you qualify for the loan and then you continue to incur new debts again on the credit cards, you’re essentially increasing your debt load leading to further problems.
• Your credit score will drop. Instead of having three accounts with a good payment history, you now only have one.

Sometimes debt consolidation loans won’t work for you. 

Howard Hayes - Client Services

Don’t forget, a lenders primary motivation for wanting to qualify you for a debt consolidation loan is because they believe they can money from you.

If the debt load you have is just too overwhelming and the monthly payments on a debt consolidation loan will be too high or you simply don’t qualify then you’ll need to start looking at other options.  Bankruptcy is an option, but it may not be the only other answer.

The advantages of filing a bankruptcy would be that you’d be clearing yourself of all the debts as opposed to re-financing them.  You don’t need to qualify to file for bankruptcy; it’s a choice you make.  It’s the quickest and cheapest way to clear yourself of debt problems and it legally protects you when accounts get behind and you face collection problems and the threats of legal action against you.

Many people will search for help in consolidating debts as a way to avoid filing bankruptcy and often fall into the trap of committing to a higher interest rate debt consolidation loan because the only financial institutions that will qualify you will typically charge you a higher rate of interest for doing so.  The fear of bankruptcy and the fear of losing assets will often lead people to the clutches of lenders that care more for their profits than they do about you as a customer.

The good news is that there is another way.  Consumer Proposals are becoming more and more the number one alternative to bankruptcy and the number one way to consolidate debts.

A Consumer Proposal is a legally binding settlement of debts.  Proposals can be filed with the help of a trustee.  It allows you to offer payment terms to the people that you owe money to that you can realistically afford.  You’re allowed a maximum of five years in which to complete a proposal and there is no interest charged on what you repay.   In the same way a debt consolidation loan groups all your debts into one payment, a Consumer Proposal does too except this time, instead of paying the principal debts plus interest, you’re only paying back what you offer to pay back.

Sounds too good to be true? Well consider the position of the people you owe money too.  If you don’t qualify for a debt consolidation loan, and as much as you may want to still avoid a bankruptcy, they want to avoid it too.  They’d rather accept a Consumer Proposal that is offered on the premise that they’d rather get something back that nothing.

Finding ways to solve a debt problem is never easy.  Here at Hoyes Michalos & Associates Inc we recognize that no two people’s debts problems are exactly the same and therefore the best solutions for a debt problem will depend entirely on your specific circumstances.   As such, we always recommend that you contact us right away and speak to one of our professionals about your situation and we’ll go over all the options you have.  Whether you just want to talk on the phone or book an appointment to come in to one of our offices for a chat, it’s a free service we offer and there’s no obligation.  Contact us by email or call today at 310-PLAN and let’s get started.

Each and every day I meet with or talk to people on the phone who are struggling with debt. The Blahs of Debt really are very similar to the Blahs of Winter.

I don’t know about you, but the after Christmas let-down can be pretty hard. I love the anticipation of Christmas – decorating the tree, seeing the children in my family shudder with excitement and scream with delight as the day grows nearer, getting together with family and laughing so hard that our jaws hurt the next day. Then, in a seeming instant, it is all over. Everybody goes home, the tree is tucked away for another year, work routines normalize and all that is left is dealing with winter.

Some people love winter – I don’t so much. I drive a lot for work, so I am always worried about the weather. I am not much for outdoor sports; aside from walking my dog, I pretty much avoid the outdoors. It is too cold, and just simply too much work. I hate shoveling the drive. Well, I think you are getting the picture. For some of us, winter is just not that much fun. It is easy to cocoon ourselves until Spring and that can leave us feeling pretty blah.

Just like winter, finances can leave us feeling a little cold, blue and blah. Just like winter, when dealing with debt, it sometimes just seems easier to pull the covers over our heads and wait for Spring. This is one strategy, but it is probably not the most healthy approach. Here are some alternatives to consider:

1.) Find the strength to take stock of your debt: how much do you owe? Are you behind in any payments? What would you have to do in order to get back on track? Use a debt options calculator to see what it would cost to get out of debt. Here is a credit card calculator that is a great tool to help you figure out what it would take to become debt free on your own

2.) If after taking stock, you determine that managing on your own is not a realistic option, make an appointment with your financial advisor or your bank manager – is there something that they can suggest that can help you to get your finances under control? Would you qualify for a debt consolidation loan?

3.) In some cases, banks and financial advisors can help, in other cases they can’t – if they can’t, there is another professional that I would encourage you to see – a Credit Counsellor – credit counsellors can be a very helpful and objective set of eyes – they may be able to suggest some changes that you can make to your monthly budget that can be effective in helping you deal more effectively with the debt. In other cases, they may be able to negotiate with your creditors – this is called a Debt Management Plan.

4.) Sometimes there is really only one professional who can give you the help you need to get rid of the blahs of debt – this is a Trustee in Bankruptcy – for many people, the realization that they may need to file bankruptcy in Ontario makes them feel even more blah, but this is most often because they don’t really understand how Trustees help. Lots of people make assumptions that they will lose everything and that bankruptcy is the only alternative. While talking to a Trustee can certainly be a difficult thing to do, in most cases the clients who do, are glad they did. Why? Because a Trustee can help them beat the Blahs of Debt. Whether through filing bankruptcy or a consumer proposal, the debt gets effectively dealt with. Most people tell us that by simply talking to us, they feel a weight lifted from their shoulders and their blahs turn into hope for the future.

Although dealing with the Blahs of Debt is similar to dealing with the Blahs of Winter, there is one very big difference. We can’t do anything about Winter – it’s here. But you can do something about your debt. We’d be pleased to help you understand what all of your options are. Give us a call at 310-PLAN, or send us an e-mail – let us help you put the blahs of debt behind you.

It’s that time of year again, where people look to get a fresh start and improve their lives. Many people do this in the form of New Year’s resolutions. Some of the most common New Year’s resolutions are:

• Improving personal health: some of the popular resolutions in this category are weight loss, quit smoking, exercise more, and drink less alcohol.
• Improving education:  such as obtaining a post-secondary degree, finishing high school, learning a new language or improving grades.
• Self improvement: Getting more organized, learning to cope with stress, and better time management are common goals people set for themselves.
• Getting a better job: Many people aspire to advance their career or change their career field.
• Getting finances in order:  save money and get out of debt are the most common.

Ross Stevenson

If your New Year’s resolution is to get out of debt, there are some steps you need to take. The first step would be to make a summary of your debts and your significant assets, such as your house, car and RRSP.

The next step would be to make a budget. It is important that you make your budget realistic. You don’t need to get complicated; you can simply calculate the monthly family income and where your money is being spent each month.

The final step would be to set financial goals. Consider what is important to you and your family. Think about where you would like to be in the future.  It is easy to get distracted by the things going on in our day-to-day lives and we forget about what we want in the future. New Year’s is an excellent time to evaluate where we are and what goals we have for ourselves.

In order to be in control of your financial situation you need to summarize your significant assets, make a budget, and set realistic goals.

After you do these things, you can evaluate the advantages and disadvantages of all your options, which may include:

• Using your assets to deal with the debt, perhaps by selling your house, or your second car, or cashing in some of your investments
• Getting a debt consolidation loan with a financial institution
• Debt Management Plan
• Consumer Proposal
• Personal Bankruptcy

Which option is right for you? Start by using our free, on-line debt options calculator.

If your New Year’s resolution is to get out of debt and you would like to discuss your options, we are happy to help. You can phone us at 310-PLAN (no area code required), email us, or fill out our online evaluation.  One of our experts will contact you and go through all your options. This could be the Year you finally get out of debt, so contact us today, and let’s get started.

Douglas Hoyes, Bankruptcy Trustee

I was interviewed by Jonathan Chevreau of the Financial Post for an article that appeared today titled No immunity to bankruptcy. Mr. Chevreau poses this question: “Does it ever make sense for retirees to go bankrupt?”

I am quoted as saying that from 2006 to 2010, between 7% and 9% of the debtors handled by bankruptcy trustees Hoyes Michalos & Associates Inc. were 60 years of age or over. That’s true. In fact, after holding steady in the 7% range between 2006 and 2009, in the first seven months of 2010 the percentage of people aged 60 or over who have filed a consumer proposal or a personal bankruptcy in Ontario with us has increased to 9%. That statistic clearly indicates that more seniors are experiencing financial difficulty, and are making the decision to formally deal with their debt.

Here’s the key problem, as quoted in the Financial Post article:

Of course, the problem with carrying debt into retirement is that it must be serviced with less income than when working full-time. Some adapt by making only the minimum monthly payments on credit cards, which leads to a downward debt spiral, a journey that often ends with a trip to offices like Hoyes.

That’s exactly correct. If you already have debt when you retire, and your income drops when you retire, it may become impossible to service your debt and pay your living expenses. It may not even be your fault. During this recession many seniors have financially helped their grown children who are also having money problems, and that can often deplete your retirement nest egg, and even lead to new debt.

What can seniors do if they have debt problems?

I’ve covered some of these issues in our article on What are My Options if My Income is from Social Assistance, Pensions, or Support Payments?, but here’s a summary of your debt management options if you have debts, and all of your income is from pensions:

First, you can do nothing, and stop paying your debts. If you have no assets, and if all of your income is from pensions, in most cases your creditors will be unable to garnishee your pensions. More specifically, a creditor cannot garnishee your wages if you don’t have any, so you could do nothing and the creditors would have no way to enforce any legal actions against you.

Of course doing nothing doesn’t eliminate your debt. The creditors may still phone you and send you letters, and they may take you to court, so you haven’t solved the problem; you have simply ignored them. If you open a new bank account at a bank where you have no debts, and if you are not stressed out by the phone calls, and if you have no other assets, doing nothing may be the correct option for you.

If however doing nothing would be too stressful for you, your next option is to deal with the debts on your own. You could sell your house, or liquidate investments like RRSPs, and use the proceeds to pay off your debt. You probably don’t want to sell your house, but selling may be a wise financial move if you can eliminate your debts, and reduce your monthly living costs by moving to a smaller house or apartment.

Second, if you have no assets to sell, the next option would be to consider a debt consolidation loan. With a debt consolidation loan you borrow at a bank at reasonable rates to pay off your high interest debts, like credit cards. The lower interest rate may allow you to devote more of your monthly payments to principal instead of interest, so you can repay your debts on your own. However, to qualify for a debt consolidation loan you may need assets (like a house) to pledge as security, or you may need a co-signer (since your pension income may not be sufficient to allow you to qualify on your own).

If a loan isn’t a possible solution, the third option is a debt management plan through a not for profit credit counsellor. In a debt management plan you repay all of your debts in full, but generally at a reduced or zero interest rate. For example, if you have $50,000 in debts, you could pay $1,000 per month for 50 months through a debt management plan.

If you can’t afford to repay your debts in full, the fourth option is a consumer proposal. In a consumer proposal you repay a portion of your debts. The amount you repay is negotiated by your Hoyes Michalos consumer proposal administrator with your creditors, and depends on your income, your family size, and your assets. For example, if you have $50,000 in unsecured debts, it may be possible to negotiate a settlement where you pay $500 per month for 50 months, or roughly half of the amount owing, or perhaps even less. Please contact us today to determine what your consumer proposal payments may be given your unique situation.

If even a consumer proposal is more than you can afford, the final option is personal bankruptcy. Bankruptcy discharges your unsecured debts, but there is a cost to bankruptcy, and it will negatively impact your ability to borrow in the future.

As you can see, there are many factors to consider when deciding how to deal with your debts. The answer to the question: “Does it ever make sense for retirees to go bankrupt?” depends on your situation.

For a retiree, the cost of bankruptcy may simply be too high, and the “do nothing” approach may be the best option. However, the stress of the situation may lead you to decide that a consumer proposal or bankruptcy is the correct option. The options are confusing, so here’s my advice: give our office a call, or e-mail us, or complete our free on-line evaluation and we can discuss your options. Our first consultation is free, and there is no obligation, so deal with the stress and contact us today, and then you too can have a fresh start. Let’s get started.

A significant number of the people who call our 310-PLAN information line, or who complete our free bankruptcy evaluation questionnaire or who e-mail Hoyes Michalos with questions, are asking a simple question: How can I get a debt consolidation loan? The concept behind a debt consolidation loan is simple: you get a loan at a low interest rate and use the money to pay off all of your high interest rate debts, like credit cards. Sounds like a plan, right?

Yes, if you have good credit, and the ability to repay the loan, a debt consolidation loan may be a good idea. Unfortunately if you have a lot of debt, you may not qualify for a debt consolidation loan. Or you may qualify, but only with a co-signer, which means someone else is now liable for the loan if you don’t pay. With a slow economy everyone’s job is at risk, and if you lose your job you may not be able to repay the loan, so it’s very risky asking a family member or friend to co-sign on your behalf.

There is, however, an even bigger problem with debt consolidation loans: A debt consolidation loan does not reduce your total debt. If you owe $50,000 on five credit cards it’s great to replace those five monthly payments with only one payment on a loan, but you still owe $50,000! Your total debt level remains unchanged. Lowering the interest payment is great, but unless that frees up enough cash to allow you to repay the loan in a reasonable period of time, you may not be better off; you may simply be trading one debt for another.

What should you do? Start with some research. There are many great resources on the internet, such as this debt options calculator (it’s free, and takes less than 30 seconds to complete). Other debt consolidation loans information resources can help you assess your options. We have an article discussing the advantages and disadvantages of a debt consolidation loan. Talk to your bank to see whether or not you qualify for a loan.

If you don’t, or if the monthly payments would be more than you can afford, it’s time to look at other options. For many people a consumer proposal is the perfect alternative to a debt consolidation loan. Like a loan, you make one monthly payment, but unlike a loan there is no interest, and it is often possible to negotiate a settlement with your creditors where you pay less than the full amount owing. Paying $1,000 per month on a debt consolidation loan may not be possible, but paying $500 per month may be possible in a consumer proposal.

Of course that’s just an example; the actual amount the creditors would accept may be higher or lower in your case. A consumer proposal is not right for everyone, but to find out if it’s the right solution for you please call us 310-PLAN (no area code required), or e-mail us today and we will review your situation and help you decide whether a debt consolidation loan, a consumer proposal, or some other solution is right for you.