Pursuing the “Do Nothing” Strategy

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

do nothing strategy debt relief

As a Licensed Insolvency Trustee I meet with people every day who need to file for bankruptcy or submit a proposal to their creditors to deal with their debts. None of them want to take that route. It is an emotional and stressful decision but one they arrive at based on one over-riding conclusion: They need to get out of debt.

It is always your choice what action you take to deal with debts. It may be possible to continue along the same path you are on today, however let’s look at the consequences of a ‘do nothing’ strategy.

Interest squeeze: The first thing most people in debt start to realize is that their debt payments start to take up an increasing percentage of their monthly cash flow. If for example you owe $20,000 in credit card debt your minimum monthly payments are probably around $400. Unfortunately the majority of that is interest. That’s $400 less each month that you have to use for rent, food, clothing, transportation or whatever other bills you have to pay. To make ends meet they apply for more credit. This just increases their monthly payments even more until eventually they are so squeezed by interest costs they start to miss payments.

Debt collections: Once you begin to miss a few payments, you can expect to start hearing from your creditors. They will start by sending you a statement with your payment marked “overdue”. Next will come notices and letters requesting payment. Eventually your creditors may refer your account to collections and then the phone calls begin.

Desperation Borrowing: With your credit cards maxed out and the inability to apply for traditional loans, many start to turn to even more expensive alternatives to keep afloat. Almost 1 in 8 insolvent debtors use payday loans before they end up filing bankruptcy or a consumer proposal. Most take out multiple payday loan companies before they seek help.

The Never Get Out Of Debt Plan: Even assuming you stop putting money on your credit card, your debt will never disappear by paying the minimum payment. Using our same $20,000 credit card debt example, if you want to be out of debt in three years you will have to increase your monthly payment to $725. For the average person who comes in to see me that is 30% of their take home pay. That leaves very little left for you and your family to live on.

Wage Garnishment: If you owe the bank money, and you have not made your payments, the bank could take you to court to get a judgement. If they do get a judgement, they could garnish your wages. Also, please note that if you owe money to Canada Revenue Agency, they can garish your wages without a court order.

Cancellations and Repossession: In worst case scenarios, what often happens is individuals miss so many payments they are at risk of having their home or car repossessed and their services cancelled. This can often be the tipping point that forces them to look for a better solution.

One of the most often written or spoken testimonials we receive is from our clients who say that they wish they had contacted us sooner. Don’t let that be you. Refuse to do nothing. Take the time to deal with your debt.

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