Clean Up Your Debt Mess

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Posted in Debt Help
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

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Getting Out of Debt Advice

On this weeks segment, I was joined by Gail Vaz-Oxlade to look at practical strategies for dealing with debt and what people need to do to clean up a big debt mess.  On the second part of our segment I talk with my business partner and co-founder of Hoyes, Michalos & Associates, Ted Michalos.  We discussed the topic of consumer proposals and Ted explained why they are a beneficial debt solution.

Cleaning Up The Mess – Gail Vaz-Oxlade

Gail is known for her simple debt solutions and no nonsense advice. She has written many books on the topic and is a frequent guest on Debt Free in 30.  In her latest book Money Rules, Gail states,

Stop whining about being in debt, you had your fun, you made a mess, now it’s time to clean it up, get busy.

Today she offered up a four step plan for getting rid of debt on your own.

  1. Make a list of your debts.
  2. Order the list from highest callable interest to lowest interest.  A callable loan is one where the lender can ask for payment without notice.  If you can’t pay up, they could put the debt on your credit report and your credit score will be affected, OR they could increase your interest rate.  Examples of callable debt: credit cards, finance company loans, payday loans.  Pay these debts off first to avoid getting that call.
  3. Calculate the minimum payments for each debt to know how much you need to pay to maintain your credit score.
  4. Calculate the date that you will have the debt paid off completely – for EACH debt.

Gail acknowledges that it won’t be easy, but getting out of debt needs to be a priority, especially for people carrying around a big debt mess. When it comes to eliminating payday loans, she emphasizes the importance of breaking the cycle. To do this she suggests you

…get yourself another job.  You have to work your buns off because you have to get ahead of the payday loan.

For more practical information and a guide to getting out of debt, read Gail’s book,  Debt Free Forever.

What Is A Consumer Proposal? Ted Michalos

Gail’s advice uses practical strategies for getting rid of debt on your own; but what about the people who can’t even afford to make their minimum payments and are looking at years to pay off their debts?  Ted joins me to talk about solutions for those debts that just never seem to go away.

Meet Mary and Joe

A married couple with decent jobs.  Two years ago, this wasn’t the case.  Joe’s company closed down and he was out of work for 6 months and his new job does not pay as well as his old one. Mary has medical issues, which means time off work, medical expenses, and having to use credit to make ends meet.  Not to mention, they borrow money to help their kids and their aging parents, one of whom is in a nursing home that needs to be paid for each month.

Between them, they have $60,000 in debt. They earn approximately $4000 a month combined, but have to pay living expenses like rent and groceries.  After all of their expenses they are left with only $500 a month to pay off their debts. At 10% interest on $60,000 worth of debt, it works out to about $500.  So Mary and Joe can only afford to pay the interest and continue to get nowhere with their principal amounts.

It’s Never Hopeless

Mary and Joe’s situation may not be real, but I meet people just like them every day.  Honest, hard working people who just can’t get ahead of their debts because life has gotten in the way.  Ted explains one very good debt solution for the Marys and Joes across Canada: a consumer proposal.

A consumer proposal pays back a portion of what you owe to your creditors.  The two conditions for filing a proposal are that

  1. you need to offer the people that you owe more than they would receive in a bankruptcy, and
  2. it must be a third of what you owe, which is typically enough to entice the creditors to go along.

Ted breaks down the benefits of a consumer proposal instead of a personal bankruptcy for a couple like Mary and Joe.

Assets

In a bankruptcy you have to surrender assets you own like equity in your house, RESPs or mutual funds towards your bankruptcy.

In a consumer proposal no-one seizes anything. Instead you make payment arrangements to pay part of what you owe based on the value of what you own and can spread those payments over a period of 5 years.

Income

Even if you don’t own any assets, in a bankruptcy if your income is over the government’s limits to maintain a reasonable standard of living, you have to pay what is known as surplus income, and your bankruptcy will cost more and last longer. You have to submit monthly income and expense reports and if your income goes up, your payments go up.

In a consumer proposal your income does not affect the amount that you pay or the length of your proposal.  If your income increases during your proposal, your agreement with your creditors does not change. Furthermore, you have the opportunity to pay it off faster if you do get a better paying job.

Consider Mary and Joe. They make $4000 between them in a household of 2 people so if they filed for bankruptcy, their payments would be about $750 a month for 21 months (this is where surplus income affects them).  The bankruptcy will cost between $15,000 – $20,000.  They would lose their tax refund and their assets could be included, increasing the price even more.  At $750 a month Ted points out that,

…they can’t afford to go bankrupt.

In a consumer proposal, Mary and Joe could offer $20,000 which is more than the $15,000 in a bankruptcy. But because they can pay it over 5 years, their payment would only be about $333 a month.

In Mary and Joe’s situation they were able to fit $500 in debt payments into their budget before. Not enough to pay off their debt, but more than their proposal payments. They could put that extra money into their proposal and pay it off early, in 40 months; or they could take the whole 5 years to pay it off as it is a locked in agreement with their creditors and have money left over to get back on their feet.

In either case, a bankruptcy or proposal, there are not up-front fees. You make payments only after filing the legal documents and the only payments you make are those required by your bankruptcy or proposal. There are not extra fees to pay the trustee — trustee fees come out of what you pay to your creditors.

Building a Plan to Get Out of Debt

The first step to knowing what kind of solution will work best for you is to know where you’re at. Calculate your debts and how long it will take to pay them off.  That way, you’ll know whether you can use practical strategies for paying down that debt on your own, or if you should seek help to clean up the debt mess that you’re in.

Every day we meet with people who aren’t just a little bit in debt — they are deep in debt. In fact the average insolvent debtor from our most recent study owed almost $57,000 in unsecured debts. You might wonder how they got that far in debt, but in truth, it’s pretty easy. Things start out small.  A little bit of credit card debt to pay for groceries or maybe even a trip somewhere. People put balances on their credit card fully expecting to be able to pay it off within a short period of time. But there is a fundamental problem they are avoiding — their budget doesn’t balance and that was why they had to turn to credit in the first place. Now they have both a shortfall in the budget (their expenses are higher than their income) and they have to make debt payments. So what happens?

They borrow more.

This is why credit card debt builds over time for most insolvent debtors. Once they’ve maxed out their credit cards they turn to even more expensive credit options like payday loans and quick cash installment loans.

credit card debt over time

On today’s show we talk with Gail Vaz-Oxlade about how to build a repayment plan to deal with your debt before it reaches the tipping point. If, however, you find that you are looking at years and years to pay back your debt, then you may need to consider other options like a consumer proposal or bankruptcy.

Resources Mentioned in the Show

FULL TRANSCRIPT show #19 with Gail Vaz-Oxlade and Ted Michalos

get-out-of-debt-transcript

Rebroadcast as best of show episode 51

Doug Hoyes:  Welcome to Debt Free in 30, where every week we take 30 minutes and talk to industry experts about debt, money and personal finance. I’m Doug Hoyes.

This show is called Debt Free in 30 and as that title would indicate; our main objective here is to help our listeners find ways to get out of debt. But how do you actually do that? What practical strategies are there for becoming debt free? What practical, real life steps can you take if you have a debt mess? Fortunately I have just the person to answer that question. She’s written many books on money management and she has some very definitive opinions about how to clean up a debt mess. So, here’s my conversation with one of our most popular guests Gail Vaz-Oxlade, explaining how to clean up your debt mess.

I’m joined by Gail Vaz-Oxlade and Gail, in your book Money Rules, your rule number 87 is clean up your debt mess. Here’s a quote from you. I’m actually going to give your words back to you here. Quote: “Stop whining about being in debt, you had your fun, you made a mess, now it’s time to clean it up, get busy.” So, this show’s called Debt Free in 30, give us a quick overview of your basic strategy for cleaning up a debt mess.

Gail Vaz-Oxlade: Okay, so the first thing you need to do is make a list of all your debt. And you need to order the list from highest interest rate to lowest interest rate. You have to calculate what your minimum payments on each of those debts are so you that know what you have to do to keep them in good standing so you don’t end up wrecking your credit score.

The next thing you do is you calculate what the payment needs to be to be out of debt by a certain date; the minimums aren’t enough. So, if you have a loan – let’s say you have a line of credit and you have $12,000 on the line of credit. If you just keep making the interest payment and a small token amount towards the principle, you’re going to have that line of credit forever. Instead what I want you to do is pick a day by when the line of credit will be gone. It might be 12 months from now; it might be 24 months from now. If it’s 24 months from now, you will be paying $500 off the principle every month plus your interest cost. So you write all that down. Figure out what that’s going to be for each one of your debts.

The next step is very important. The next step is the snowballing. Once you have added up all the amounts you have to pay to be out of debt by a certain day, and that date may vary by debt. If you still have a car loan in place and it’s for three years, that’s how long it’s going to take. But you’re going to set the date for your line of credit, you’re going to set the date for your credit cards. What you do is you add up what you’re going to have to pay to be out of debt, you’ll come up with one lump sum amount and you are going to apply the minimum payment on everything except your most expensive debt and by that I mean the callable debt with the highest interest rate. And that’s where you’re going to put the majority of the money, so, doing that you’re going to reduce your interest costs faster.

Doug Hoyes:  So, an example of a callable debt with a high interest rate would be something like a credit card?

Gail Vaz-Oxlade: Yes.

Doug Hoyes:  A finance company loan.

Gail Vaz-Oxlade: Yes. Buy now, pay later.

Doug Hoyes:  A pay day loan.

Gail Vaz-Oxlade: Pay day loan is a perfect example. Although usually people who are in the pay day loan cycle, what you have to do to get out of that is you have to get yourself another job. You have to work your buns off because you have to get ahead of the pay day loan.

Doug Hoyes:  Yeah, you’re almost toast at that point.

Gail Vaz-Oxlade: Absolutely.

Doug Hoyes:  So, you’ve got this list of all of my debts and I’m going to start with whatever the highest interest rate one is, that’s callable. So, if I happen to have a very high interest rate mortgage, well I guess it’s either sell the house or live with it. Those are your choices, right?

Gail Vaz-Oxlade: What you’re going to do is you’re going to try and get rid of the callable debt first because a callable debt is a debt that the bank can demand back without any notice, virtually no notice, 24 hours usually. So, they can come to you and they can say to you, you know that $12,000 line of credit you have? I want my $12,000 back. And if they can’t have it back they’ll immediately send you to collections which will ruin your credit score completely and make all your other debt more expensive.

Doug Hoyes:  Or at the very least they can jack up the interest rate on that one. So, your really low interest rate line of credit that was at 4%, all of a sudden now it’s at 10% cause they’ve decided you’re a higher risk. That’s almost just as bad.

Gail Vaz-Oxlade: A lot of people don’t realize that that can happen. I’ve gotten quite a few letters from people recently telling me that financial institutions have been raising the interest rates on their lines of credit.

And they don’t understand why because the media keeps talking about the fact that we’re still in this low interest rate environment and the Bank of Canada rate hasn’t changed so why is the bank’s rate changing? People don’t recognize the fact that banks set the interest rates themselves; the Bank of Canada rate is what they get to borrow at. It’s not what consumers get to borrow at. And even with people who have good credit scores, sometimes what happens is the money market shrinks. And so, banks are having a harder time getting their hands on money and so what they do is they start taking a harder look at who could potentially be a risk. And if you missed a payment two years ago, you’re a bigger risk and so they jack up your interest rate.

Doug Hoyes:  And that’s what does it. So, you got to start with the hard work which is make the list, sort it out and then come up with a plan to deal with it.

Gail Vaz-Oxlade: Absolutely and it’s all outlined in Debt Free Forever. I mean I have a step by step guide. There is no excuse for anyone not being able to do this. Because my editor Kate Cassidy at Harper Collins, she made me put every single step in that book with examples. And if you can’t afford to buy the book, go to the library.

Doug Hoyes:  Yep, well we’re going to put a link in the show notes to that book. Because I agree, of all your books that’s my favourite because it is very practical, very methodical, it’s all right there. Great, thanks very much for this Gail.

Gail Vaz-Oxlade: Thanks Doug.

Doug Hoyes:  So, there’s Gail Vaz-Oxlade’s advice on how to deal with a debt mess. Make a list of your debts, order them from highest to lowest, pay off the callable debts with the highest interest rates first, and keep working until you’re done. It’s hard work and you need a plan, but it’s a great strategy to clean up your debt mess.

But what if you have a huge amount of debt? In Gail’s example she’s talking about paying off your debt over a two or three year period. But what if your debt is so large that even if you cut your expenses and got a second job it would still take you ten years to pay everything off? Then what can you do? There are strategies to deal with that and that’s what we’ll talk about right after this quick break. That’s coming up next, right here on Debt Free in 30.

Doug Hoyes:  Before the break we heard Gail Vaz-Oxlade describe how to clean up a debt mess. She gave a lot of great advice and you can find out more in her book, Debt Free Forever, which I’ll link to in the show notes over at hoyes.com.

Gail’s advice is to make an inventory of your debts, make minimum payments on all of your debts and devote all of your extra money to your high interest callable debts. That’s great advice but what if your debts are so huge you can’t even make your minimum payments?

Here’s an example. Let’s say that Mary and Joe have decent jobs now but two years ago Joe’s company closed down and Joe was out of work for six months and he’s not making as much at his new job now. Mary has had some medical issues so she’s had time off work and she has a lot of expenses for prescriptions, doctor visits related to her medical condition so they’ve had to use credit to survive. Their children are grown but they’ve also had to borrow some money to help out their kids and to help out their aging parents. As a result Joe and Mary have over $60,000 in debt between them on credit cards and lines of credit.

Joe and Mary are earning about $4,000 a month between them, but from that they have to pay rent and groceries and transportation and all of their other living expenses. They live pretty frugally but they’re still helping to pay for some of Joe’s father’s costs at the nursing home he’s in and that only leaves them about $500 per month to put towards their debts.

The interest rates on their line of credit and credit cards are fairly reasonable, averaging around 10% on everything, but unfortunately 10% interest on $60,000 in debt works out to about $500 a month just in interest. So, Mary and Joe can only afford to pay the interest and nothing more. They would love to pay off their debts but they just don’t have the money. Mary can’t work any more hours due to her medical issues and Joe keeps looking for a better job but hasn’t found anything yet.

They have a real debt mess. What can they do? Well, to answer that question I’ve invited back to the show my business partner and Hoyes Michalos co-founder Ted Michalos. So, Ted what do you think? Is this situation hopeless for Joe and Mary?

Ted Michalos: Well, it’s never hopeless. It may seem that way to them because they can’t see the forest through the trees but there are solutions. There are things that they can do to get relief from this debt.

Before we start exploring with that I think I want to expand a little more on your scenario. So, $60,000 worth of debt and the interest every month is $600 but the minimum payments they are expected to make are somewhere between $1,500 and $1,800. So, it’s not just that they can pay the interest, they probably already are having trouble making the minimum payments on all of this debt because where is that $1,800 going to come from?

They probably put a payment on the Visa card and then take it out again and put it on the Mastercard and take it out again and put in on the American Express Card. So, you’re right, they’re dealing with the interest but the debt is never going to go down.

Well, so what do we need to do? We’ve got to find a way to eliminate the interest and reduce the total amount that they have to pay.

The solution I think that comes to mind is something called a consumer proposal. Now this is a legal procedure where you repay a portion of what you owe. They’re becoming much more common and popular in the last few years. In fact now about half the people that go to see a bankruptcy trustee, thinking they have to file bankruptcy, end up filing a consumer proposal instead because it is a so much better solution.

Doug Hoyes:  So, let’s break it down and go through this kind of step by step. So, why is it a better solution than just going bankrupt? They’ve got all this debt, why not just go bankrupt, blow it away and start over? Why are you not recommending that?

Ted Michalos: Well, so you got to understand how bankruptcy works. The concept behind bankruptcy is, look I can’t repay any of the $60,000. In exchange for eliminating the $60,000 worth of debt there are very specific rules for what you have to pay and what we have to deal with.

First and foremost we look at is there anything that you own that can be turned into cash to go to reduce your debt? So, if you have equity in your home or if you’ve got mutual funds or savings, if you got RESPs for your kids, all of these things can be seized to be turned into cash in a bankruptcy. In a consumer proposal, we’re not seizing anything. A consumer proposal is literally a deal that you make with your creditors to repay part of what you owe.

Doug Hoyes:  Now Joe and Mary they don’t own anything, they rent, they’ve got an old car. They don’t have any investments. They make $4,000 bucks a month between them, so wouldn’t bankruptcy just be a quicker and cheaper option?

Ted Michalos: Well and it could be. But the second element of bankruptcy is there is a monthly payment based on family size and income. I don’t want to get too technical but based on their situation; they’ve got two people in the household, $4,000 coming in. Their bankruptcy payment would probably be somewhere in the neighbourhood of $750 a month. It would run for 21 months. So, bankruptcy is going to cost them between $15,000 to $20,000.

Doug Hoyes:  And if you want to find out more about what Ted’s talking about you can go to our website and do a search for surplus income, that’s the concept that he’s talking about.

But Ted’s right, the more you make, the more you got to pay. That’s how bankruptcy works. Right now Mary’s income probably isn’t going to go up. Joe would like to find a better job so if his income goes up while he’s bankrupt then the payment goes up. That’s how it works, right?

Ted Michalos: That’s exactly right.

Doug Hoyes:  It’s re-evaluated every month. So, bankruptcy doesn’t sound like a great idea because based on their current situation it could cost let’s say $750 a month – and again we’re giving round numbers, when you come in to see us we do you the exact math for your situation – and they will be bankrupt for 21 months and he might have to pay more than that as time goes on. Plus he’d lose his tax refund and any other assets he might have. So, the bankruptcy doesn’t sound like a great option.

Ted Michalos: Now and don’t forget, you said based on their living expenses they’ve got $500 a month to pay and we just said the bankruptcy is going to be $750, so it doesn’t solve the problem anyway.

Doug Hoyes:  Yeah, they can’t afford to go bankrupt, that’s really what happens.

Ted Michalos: And that’s got to drive you nuts folks.

Doug Hoyes:  So, okay a proposal then, is it possible to do the proposal for less than $750 a month?

Ted Michalos: Yes. So, the proposal, there are two conditions. You need to offer your creditors more money than they get in a bankruptcy. And currently you need to offer them about a third of what you owe. So, it’s one or the other. Well, we just said a bankruptcy is somewhere around $15,000. They owe $60,000, a third of $60,000 is $20,000. So, it’s more than the 15 and the question now is can we make it into a manageable payment? For proposals you’re allowed to pay over five years. So, $20,000 is something like $333 a month.

Doug Hoyes:  So, and if they can afford $500 then I guess they can do it in 40 months instead of five years.

Ted Michalos: That’s exactly right.

Doug Hoyes:  They can get it paid off quicker. So, the whole concept then in a consumer proposal is, you take what I would have had to pay in bankruptcy, offer a little bit more because we need the creditors to say yes to it; but I can stretch those payments out over a longer period of time then what would happen in a bankruptcy.

Ted Michalos: That’s exactly right. And there are two bigger benefits. So, the first is completely emotional. You’re going to feel better about paying back part of your debt. So you can honestly say if anybody ever asks you, have you filed bankruptcy the answer is no, you didn’t. You filed a proposal and you paid back what you could afford to repay.

And the second benefit simply is, if your situation improves in the bankruptcy you’re actually penalized. In the proposal it’s locked in. So, once the creditors and you have agreed to a payment plan, that’s what you owe. If you pay it off quicker? That’s great; you’re done with the solution quicker. If  your situation improves, if you get a better paying job, if you inherit some money, even if you win the lottery, you’re not required to pay this thing off any quicker than what you’ve agreed to. So, you can actually start improving your life.

Doug Hoyes:  And how long does this all take? So, I’m listening to this show right now and I think oh boy, ya I got to do this. So, I get on the internet, I go to hoyes.com, I contact Ted or one of your people and how quickly does it take before a proposal’s up and running?

Ted Michalos: Yeah, so somebody who’s got all the information that we need to prepare the legal documents, and we’re not talking about complicated stuff here. You could see me in the morning and if you had all your ducks in a row I could file a proposal for you in the afternoon. Realistically it takes a couple of days.

Doug Hoyes:  So, two three days and the kind of information you’re looking for is what, your name, your address, who you owe money to?

Ted Michalos: That’s right, copies of your bills that sort of stuff. I mean it’s all stuff that you probably have at your finger tips. Now, you may not have opened the envelopes because you’re scared of what they say but you probably have all the information we need at your house.

Doug Hoyes:  So, let’s say I’m listening to this on the weekend, I phone your office on Monday, I come in to see you on Tuesday, I give you all the information. I come back on Friday to sign the paper work. When do I have to start paying you and when do I know that this is all good?

Ted Michalos: So, the proposal, as soon as you file it, you stop making payments towards the debts. So, you stop making the credit card payments, the line of credit, the loans, all of that sort of stuff. They get 45 days to figure out whether or not they like your deal and so during that 45 days you’re not dealing with the credit cards anymore. You’re not dealing with the lines of credit, you’re not dealing with the loans. In most cases you will be required to make your first payment into the proposal in the first 30 days. And the reason you’re doing that? It’s a goodwill gesture. You’re trying to demonstrate that, yes, I can afford to make this payment, look I want this thing to work.

Doug Hoyes:  So, in Joe and Mary’s case where they’re paying $500 or $600 bucks in interest right now a month, but really their payments are $1,500 bucks a month because they’ve got to make more because that’s what the deal is.

Ted Michalos: They’ve got to make the minimums.

Doug Hoyes:  You got to make the minimums. They would instantly start a proposal where they’re paying maybe $350, $400, $500 a month right on day one. So, they’re better off right on day one and then, generally speaking, 45 days later it’s all official. That’s how it all works?

Ted Michalos: That’s exactly right, yep.

Doug Hoyes:  And so there’s no massive upfront fees or anything like that?

Ted Michalos: In fact if somebody’s asking them for significant upfront fees, then they’re probably not dealing with a licensed trustee, they’re dealing with someone called a debt consultant and you don’t want to get me going on these days cause that’s a whole other program.

Doug Hoyes:  Well, we’ll have to make a note for that. So, just to be very clear here, before I sign the paperwork with you to do a consumer proposal, how much money do I have to give you?

Ted Michalos: You shouldn’t have to give me anything.

Doug Hoyes:  Zero, okay. So, there is no upfront fee until the process starts, until it’s filed with the government, it’s legally binding.

Ted Michalos: That’s right. And that’s the way the law is written.

Doug Hoyes:  So, this isn’t just you being a nice guy.

Ted Michalos: No.

Doug Hoyes:  It’s illegal or it’s not allowed –

Ted Michalos: Any trustee you talk to, the first thing you should say is do you need any money upfront and if they ask for any money upfront, go talk to another trustee.

Doug Hoyes:  Because they’re not doing it right. The rule is whatever money you pay has to go into the process. There can’t be any charge up front for –

You’re looking for a solution for your debts here. You’re not looking for somebody to take advantage of you and hit you with a bunch of legal fees.

Doug Hoyes:  So, what down sides are we missing here? Is this going to totally toast my credit? Is this going to make me so I can’t get a job? Like what are we missing here?

Ted Michalos: Let’s talk about the credit report cause  this is one of those bugaboos that people have in their mind that it’s critically important that their credit report look great. And you know what? It is important that you have good credit. But frankly, in this couple’s case, they already owe $60,000; no one is going to approve them for any new credit. So, even though they’re making all the minimum payments and their credit report looks good, the fact is they don’t have good credit because no one is going to approve them for anything new.

By dealing with your debt, you’ll get over the hump. There will be a period of time when you don’t have access to credit but that’s a good thing, frankly. You need to learn to live within your means, to live with money you’ve got coming in and not rely on credit. And then once you’ve dealt with the debt, your credit will re-establish itself very quickly.

Doug Hoyes:  So, your credit’s already shot, that’s why you’re talking to us. It can’t be any worse than what it already is. But by dealing with the debt you actually clean it up. That’s what you’re talking about.

Ted Michalos: That’s right. You’ll make your credit better.

Doug Hoyes:  And there’s no other hidden things we haven’t thought of. You’re not going to get fired from your job. You’re not going to get evicted from your house. In fact if you actually owned a house and had a mortgage and it was up to date, you could just keep on paying it.

Ted Michalos: Yeah, a lot of people are worried so if I do one of these things, do I lose my car? Do I lose my house? A proposal is designed to deal with your unsecured debts. Things like your credit cards, maybe your income tax bill, your line of credit, your outstanding loan, even pay day loans. It doesn’t deal with things like your car lease or your car loan or your mortgage. As long as you make your payments on those secured debts you get to keep the things that you’re paying for. And that just makes sense.

Doug Hoyes:  Sounds like a perfect arrangement. Well, there you go. So, if you’ve got a massive amount of debt that you can’t service on your own, a great way to clean up your debt mess is by filing a consumer proposal. We’ve got lots of information on that over at hoyes.com. Thanks for being here Ted. I’ll be back to wrap it up right after this. You’re listening to Debt Free in 30.

Doug Hoyes:  Welcome back. It’s time for the 30 second recap of what we discussed today. My first guest today was Gail Vaz-oxlade who gave us a very concise strategy for cleaning up a debt mess. She said you should make a list of your debts, order your debts from highest interest rates to lowest, make your minimum payments on all of your debts but pay extra on your highest interest rate callable debt. Things like credit debts, pay day loans and lines of credit. Get rid of the callable debt first because the bank can call that loan at any time which can ruin your credit or jack up the interest rate. It’s hard work, you need a plan but it can work.

In our second segment Ted Michalos explained how if you have a huge amount of debt and can’t pay it in full, a consumer proposal may be the best option for cleaning up a debt mess. That’s the 30 second recap of what we discussed today.

So, what’s my take on cleaning up a debt mess? I think it’s obvious from what our two guests said today that the first step is to figure out where you’re at. How much debt do you have? And what will it take to pay it off? It’s always best to clean up your debt mess on your own. So, if you can cut your expenses and increase your income to free up cash, that’s the best way to go. If you can get everything paid off in a year or two, do it. Pick up a copy of Gail’s, Debt Free Forever book and follow her detailed instructions. If you have more debt than you can pay off in two or three years, or longer, it’s time to consider a more permanent solution and that’s where a consumer proposal comes into play.

That’s our show for today. This show is on the radio every week and also available on our website and on iTunes. So, please go to hoyes.com for a full list of participating radio stations and details on how you can download the show to listen to on your iPod or smart phone.

Full show notes are available on our website and I would love to hear your comments which you can leave right on our website at hoyes.com. Thanks for listening, until next week, I’m Doug Hoyes and that was Debt Free in 30.