Most people we help with debt have been struggling unnecessarily with debt repayment for months, if not years. Running on the debt treadmill is a financial hardship no-one needs to endure. When you can’t afford to pay your debts, you do have options.
Getting help with debt begins with answering these 4 key questions:
- How much debt do I have?
- Can I afford to repay that debt in full?
- What are my options for debt relief?
- Who can help me build an affordable repayment plan?
How much debt do you have?
Any plan to pay down debt begins with a full debt assessment. This is your starting point. It’s important to know who you owe money to, how much you owe to each creditor and what your required minimum monthly payments are.
- Pull copies of your bank statements, credit cards, utility bills for the last 6 months
- Get a free copy of your credit report from TransUnion and Equifax
Make a list of everyone you owe money to. Include the name of your creditor, the type of debt, the interest rate you are paying and the amount you owe. You can use our free excel debt worksheet that can help you take stock of your financial situation.
Are you shocked by the amount of money you owe? Don’t be. You are not alone in not necessarily knowing just how much you owe.
Can you afford to repay your debt in full?
Depending on how deep in debt you are, you may be able to repay your debts on your own with the right repayment strategy.
Prepare a personal budget and see how much money you have available each month to put towards your debt. This will answer if you can get out of debt simply by reducing your expenses.
If you want to get out of debt quickly your debt reduction budget must follow 3 important principles:
- Pay more than the minimum, in fact, pay as much as you can afford each month.
- Pay off high-interest debt first. While there is an emotion benefit to the debt snowball method over high interest, you will pay off debt sooner if you pay your highest interest balances first.
- Spend less than you make. If you have negative cash flow each month, you will be forced to rely on more debt to make ends meet increasing, rather than decreasing, your debt load.
If your debts are manageable, you can either build a do-it-yourself repayment plan or work with a reputable credit counselling agency to prepare a debt management plan. Be aware that a debt management plan will impact your credit report like any other debt relief program but costs more. You make higher monthly payments than other debt relief programs because you must pay back all of your debt.
A new debt consolidation loan can also be a feasible way to pay off debt. Your overall financial health and credit score will determine if you could qualify for a loan through a bank or financial institution and lower your payments enough to help you get out of debt.
If, after looking at your household budget, you don’t believe you have enough monthly income available to repay your debt in full, it’s time to consider other debt elimination options.
What debt relief options help you get out of debt?
If refinancing your debt isn’t an achievable way to help lower your debt balances, then there are formal debt relief options that may remedy your situation.
- A consumer proposal will allow you to settle your debts for less than the full amount and generally see you get out of debt in 5 years or less.
- Filing bankruptcy is always a last resort but a solution that makes sense in certain situations.
Insolvency programs like a consumer proposal or personal bankruptcy are designed to help you get out of debt by giving you a fresh financial start.
If you are struggling with more than $10,000 in debt, contact us to talk with a Licensed Insolvency Trustee. As federally regulated debt professionals, trustees are the only professionals in Canada that provide a full range of debt help services including credit counselling, consumer proposals, and bankruptcy.