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:
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).
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.
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.
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.
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.
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.
Which option is right for you? Try our debt options calculator, or contact us for a no charge initial consultation to review your options.
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.
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.
Douglas Hoyes, Consumer Proposal Administrator, Bankruptcy Trustee
We’ve all heard the ads: “Government program will reduce your debts! Call now! Operators are standing by!”
Most of us have also received phone calls from telemarketers (they always call when you are eating dinner) promising to settle your debts if you “Act Now!”
Who are these debt consultants, and why can they afford to advertise heavily, and hire telemarketers?
The answer is that many of these debt consultants aren’t anybody at all. They don’t have any professional qualifications, and in many cases they don’t even have offices in Canada. They work out of call centers in the U.S., and they take your money and often don’t do anything at all. (It’s easy to have lots of money to spend on advertising if you never incur any costs to actually provide a service).
Believe it or not, many of them are nothing more than a referral service for bankruptcy trustees! They charge you a huge fee, and then refer you to a trustee!
Two weeks ago I reported on the results of my investigation into Cambridge Life Solutions, one of the big advertisers on radio. (When you read the article you will see that this is a classic example of a company from the U.S. making phone calls from their U.S. call center to unsuspecting Canadians).
So why do these debt consultants exist? They exist because most people with debt problems have never had debt problems before, so they don’t know who to turn to for help. You don’t want to talk to a bankruptcy trustee, because you’ve heard that bankruptcy trustees in Canada work for the creditors, right? (It’s not true, but that’s what debt consultants want you to believe). So, when you have a problem, you call the company that advertises the most.
Debt consultants do not require a government license, or any formal training, so anyone can call themselves a “debt consultant”. (You can read the Doug Hoyes biography for details on my professional qualifications and experience). That makes it easy for anyone to set up shop and start taking your money.
Debt consultants often charge huge up front fees. It’s not unusual to pay hundreds, even thousands of dollars to them before they even pick up the phone to contact your creditors to see if a deal is possible. (At Hoyes Michalos you don’t start paying until your consumer proposal is filed with the government, and a legal “stay of proceedings” is in place, preventing your unsecured creditors from taking you to court and garnisheeing your wages).
Finally, as noted above, a licensed bankruptcy trustee and consumer proposal administrator like the professionals at Hoyes Michalos provide legal protection from your creditors.
Debt consultants don’t.
I have no objection to companies helping people deal with their debts. I do object to unregulated companies with no professional qualifications using telemarketers to entice unsuspecting people into parting with thousands of dollars for nothing.
My advice? Do your research.
Before you hire anyone to help you solve your debt problems check them out on line, then arrange a personal, in person meeting. At Hoyes Michalos we are happy to talk to you over the phone to answer your questions, or give you some ideas with our free, on-line evaluation, but all the technology in the world is no substitute for a personal meeting, so before you sign any paperwork with us, and before you pay us any money, we will meet with you in person to review your options and help you make a plan that’s right for you.
Taking care of your credit is like taking care of your car. How many times have you taken your car into the mechanic and thought that it was a minor problem only to find out it really was major? Car repairs usually become more expensive when we procrastinate about going to the mechanic. It is the same with your credit: the longer you wait to address the problem, the bigger the problem becomes. So the best time to start your repairs is as soon as you identify the problem.
If you have fallen behind with your payments and you are about to be, or have just been, assigned to collections, contact your creditor before they contact you. Why do I suggest you call those “mean” people first, you ask? Two reasons:
First, the sooner you call the more time you have to arrange payment.
Second, when you contact them voluntarily, you are seen to be more sincere and credible. Have a plan worked out that will address more than just the interest on the debt. Have a plan that will pay the debt in full, or bring it back into line over a reasonable period of time. When you make a deal with them, make your payments on time or early. They do not have to wait for their money before you start to rebuild their trust, which is what credit is all about.
Here’s the key point: if you are going to repair your credit on your own, decide in advance what you can afford to pay before you talk to your creditors. If they agree to your plan, stick to it. Don’t make a promise you can’t keep, because that will hurt your credibility, and make it harder to negotiate a deal in the future.
But what can you do if you can’t work out a plan with the people you owe money to? What do you do if they want more money than you can afford to give them?
If you realize that you cannot pay this debt over a short period of time, or you cannot pay more than interest, then the problem is more severe. That is where we come into the picture. At Hoyes Michalos will sit down with you and review your financial situation and work out a plan to repair or reconstruct your credit. We will review many options if you can’t work out a plan on your own:
A debt management program may work for you if you can pay the total amount of your debt without interest over a five year term. If that is not possible,
A consumer proposal may be the solution for you. If that’s not possible,
We can explain how each of these programs works, how it affects your credit and how to rebuild your credit from here.
Remember, credit is based on trust and trust has to be earned but you can regain trust after you have lost it.
A consumer proposal may be the first step in building that trust. With a consumer proposal we work with you and your creditors to negotiate a settlement. If you owe $50,000 on credit cards, bank loans, payday loans, and tax debt, we may be able to work out a plan where you pay somewhere between a third to half of the full amount owing. A typical plan may be payments from you of $300 per month for 60 months, or $18,000, with the balance written off. (This is an example only; the actual amount you will pay is based on your income, your assets, and your total debts).
Once the proposal is completed, you are debt free. You will start saving money, and it is those savings that will start the credit repair process. We have more information in our article on how to repair your credit.
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
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.
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.
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.
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.
You have seen the ads that promise to "reduce your debt by up to 70% without filing bankruptcy." The ads sound too good to be true, and they make you wonder who you are dealing with. How can someone running an ad in a newspaper make such a bold claim?
The procedure they are "selling" is often a consumer proposal and the claim of 70% debt reduction is often correct. Most people that file a consumer proposal repay about 30% of what they owe.
The second half of the claim, "without filing bankruptcy" is also true. A consumer proposal is a legal procedure administered by licensed trustees in bankruptcy who also serve as consumer proposal administrators, but it is not bankruptcy.
Where the people running these ads run into trouble (and that is not to suggest they are breaking the law because as far as I can tell they aren’t) is the fact that they charge you a fee for their services when all of the information they provide and the assistance that they give is available free of charge from trustees in bankruptcy.
Let me say that another way: the service these companies provide is to help you assemble the information necessary to file a consumer proposal. They can’t actually file a consumer proposal themselves, as only licensed consumer proposal administrators can do that. So once they have gathered up all of your information and you have paid them their fee, they refer you to a trustee to prepare and file the consumer proposal. What they don’t tell you is that if you had called a trustee directly there wouldn’t have been this extra fee – they would have provided the same service without the fee.
So who are you dealing with? Well, the companies running these ads call themselves debt consultants. There are no regulations for this industry as until some one thought up this “scam” a few years ago the industry didn’t exist. If there are no regulations then there is also no government oversight. If you decide to deal with one of these companies and something goes wrong, your only recourse is through the Courts. Given that you called them because you were in financial difficulty, what are the chances if something goes wrong you can afford to take them to Court? For most people the answer is slim or none.
So, if you are going to have to deal with a licensed trustee to file a consumer proposal, and the trustee won’t charge you an extra fee to help you assemble the information required to prepare a consumer proposal, why exactly would anyone ever deal with one of these companies?
The answer for some people is that they saw an ad, and responded to it, without asking any questions. For other people they use a debt consultant because they were afraid that a trustee would only talk to them about bankruptcy, and wouldn’t mention other alternatives, like a consumer proposal.
Don’t be fooled. Before you sign any agreement to help you deal with your debts, and before you hand over any of your hard earned (and in short supply) money, ask the person if the solution for you is to file a consumer proposal. If it is then ask them if they are a licensed trustee. If they are not then there really isn’t any point in dealing with them further.
Want to find out more? Call Hoyes, Michalos & Associates today. You can reach us at 310-PLAN (no area code required anywhere in Ontario), or call your local Hoyes Michalos office, or you can e-mail us, or even fill out our free evaluation form and we will respond with some personalized suggestions to deal with your debts. We are licensed by the federal government as both trustees in bankruptcy and consumer proposal administrators, and we do not charge an up front fee. We will explain to you, in detail, all of your debt management options, so that you can make an informed decision. No high pressure ads. Just information from licensed professionals.
I recently joined Hoyes Michalos, and I work in our London and Sarnia offices. Previous to joining Hoyes Michalos I spent 6 years as a credit counsellor. One theme that comes up again and again in my work is that folks we see are hesitant to call for help.
There is no question that financial distress can be one of the most difficult things to deal with. Money problems are a private issue and it’s hard to tell who to turn to for help.
At Hoyes Michalos our goal is to help you to find the right option for you and your family. People I talk to worry that personal bankruptcy is the only option. Rest assured that when you call us, bankruptcy is the last option we will discuss, not the first.
As a former credit counsellor I’m well qualified to discuss how a debt management plan may be the solution to your problems. Debt management plans are great if you have a limited amount of debt, and the ability to repay your debts in full.
If you can’t repay your debts in full, a consumer proposal may be the perfect option. Like a debt management plan we negotiate a settlement with your creditors, and in most cases a settlement can be reached where you pay less than the full amount owing.
When you call Hoyes Michalos, you will speak with someone who cares about helping you find the right option. We will go over your situation with you, and if you like, we can book you a free consultation to meet face to face and review your options. There is no obligation or cost to this meeting, and you will find us welcoming and non judgmental.
If you are struggling with debt due to job loss, difficult business climate, relationship issues, or any other reason at all, let me invite you to call us. We can be reached toll free at 310-PLAN (that’s 310-7526 – no area code is required). We look forward to helping you build a plan to deal with your debts.
But remember, we can’t help you if you don’t first make the call.
The economy is getting worse. I just met with a car salesman who told me that he is selling fewer cars this year than last. Factory workers are telling me there is no more overtime, and many are now on reduced shifts or layoffs. I even met with a collection agent this week who is in financial trouble because the economy is so bad he can’t even collect on delinquent accounts! What does this mean?
It means you need a plan.
If you have any debt, the worsening economy may mean that your income will be reduced, and it will be harder for you to repay your debt in the future. Ask yourself this question: what will you do if you lose your job tomorrow, or if your hours get cut back? What will you do if the price of gas keeps increasing, and you have less money to make your debt payments?
You need a plan to deal with your debts.
If you still have a job, and if your wages are not yet being garnisheed, you have more options. You may be able to get a second job to increase your income, or you may be able to start cutting expenses to free up cash to pay your debts. You may still qualify for a debt consolidation loan to reduce the interest rate you are paying on your high interest credit card debt. You may be able to file a debt management plan through a not-for-profit credit counsellor who will negotiate a repayment plan with your creditors.
What if the bank won’t give you a debt consolidation loan, or you can’t afford a debt management plan?
Then you should consider a consumer proposal. Give us a call at 310-PLAN and one of our professionals will ask you some simple questions, such as how much money you owe, what you own, and what you take home each month. If you could afford to repay some of your debt, a consumer proposal may be the solution for you. For example, if you have $50,000 in credit card and other debts, we could file a consumer proposal where you pay $400 per month for 50 months, or $20,000 in total. You get an affordable repayment plan, with no interest, and your creditors are happy because at least they get some of their money. Of course the exact amount your creditors will accept will depend on your individual circumstances, but the call to us at 310-PLAN is free, so you have nothing to lose (but your debt) by calling us today.
If you cannot afford a consumer proposal, the final option is personal bankruptcy in Ontario. At Hoyes, Michalos & Associates we consider personal bankruptcy to be a last resort, if all of the other options won’t work for you. However, bankruptcy exists to give you a fresh start, so if that’s what you need, we would be happy to walk you through the process. So what do you need?
You need a plan.
No option is right for everyone, but one of the options discussed above is right for you. You don’t need to suffer through the endless telephone calls and threatening letters. It is possible to get a fresh start, but your fresh start only starts when you make a plan to deal with your debts. Here’s how we can help:
Call us at 310-PLAN. We have professionals available from 8:00 am to 6:00 pm during the week, and from 9:00 am to 1:00 pm on Saturdays. Our 310-PLAN phone number works throughout Ontario, and you don’t even need to dial the area code. Or, take three minutes and complete our free on-line bankruptcy evaluation form. One of our professionals will review your information and e-mail or call you back with a plan for your unique circumstances. Or, just send us an e-mail and we will call or e-mail you back with the answer to your questions, and if you want, we’ll arrange for a no-charge initial consultation at one of our 22 fresh start offices in Ontario.
There is help available, but you need to make a plan to get started.
Last month I appeared on Till Debt Do Us Part, a Reality TV show where the host helps people deal with their money problems. They wanted me to appear on the show to talk to a woman who had a lot of debt.
The show, titled Single Mom Shake Up, first aired in December, 2007, and it featured Tammy, a single mother with about $48,000 in debt.
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I recently joined Hoyes Michalos, and I work in our 
