No one wants to be in debt, but sometimes due to our lives circumstances we might find ourselves hard pressed to make our income meet our basic needs, much less have enough to make bill payments.
If you find yourself struggling to make monthly payments to two or more creditors, you might want to look into debt relief. Luckily there are three very good options for Canadian debt relief for you to consider.
1. Debt Consolidation
The first form of Canadian debt relief you should consider is debt consolidation. With debt consolidation, you consolidate the debt you have with multiple creditors and pay them off with one payment.
Debt consolidation requires you to take out what is known as a debt consolidation loan. This is a loan that you take out to pay your “consolidated” debt. Instead of trying to figure out how to pay multiple creditors and keep track of multiple payment due dates, you just need to make the monthly payment of your debt consolidation loan and that pays off all your other debts.
These are the advantages of a debt consolidation loan:
- Less stress as you now just have to make one monthly payment
- Debt consolidation loans have a lower interest rate than other loans
- You pay off your debt faster
These are the disadvantages:
- You need to provide collateral
- You need to have a good credit score
If you’re confident in your ability to budget and remember to pay you debt consolidation loan payments on time, this sort of debt relief could ensure that you are debt free in several years.
2. Debt Management
In Canada, people seeking to get out of debt can turn to debt counseling or credit counseling companies. The professional credit counselors in these companies can help you develop a debt management or debt consolidation plan to allow you to pay off multiple sources of debt quickly and easily.
If you decide to engage the services of a debt counseling company, they will pair you with a credit counselor who will take a look at your debts and your financial situation. The goal is to come up with a way to combine your different debt payments into one manageable monthly payment.
A debt management plan has a similar goal to a debt consolidation loan in the sense that it wants to save you from paying multiple monthly bills and instead, arrange it so you’re making one monthly payment. In the case of a debt management plan, you’re making your monthly payment to your debt counseling company which then pays your debtors for you.
Once your debt counselor has met with you and determined how much you can afford to pay your creditors monthly, they will meet with your creditors on your behalf and negotiate a payment plan that will suit your budget.
One big advantage in using a credit counselor is they can often make your monthly payments more affordable as they will try to get your creditors to lower the interest rate on your debt. With this negotiated rate and simplified payment method, many find themselves debt free within five years.
The advantage of a debt management plan are:
- Easy payment as you just need to pay your debt counseling company
- Your credit counselor can negotiate for a lower interest rate
- Your credit counselor can also offer your financial advice that will help you stay debt free in the future
The disadvantage of a debt management plan are:
- You will need to pay service fees to your credit counseling company
3. Debt Settlement
With debt settlement, you still talk with a credit counselor to figure out how you can pay your creditors. However, the goal here is not to pay off all your debt but just pay off a certain manageable amount.
When you and your credit counselor figure out how much you can afford to pay your creditors, your counselor goes to them and negotiates to allow you to pay a certain percentage of your outstanding debt to settle the entire balance.
If a settlement is reached, your creditors will get some or most of their money back, and they will agree to no longer come after you for the remaining balance. The debt is “settled”.
The advantages of debt settlement are:
- You save on interest and any late fees or penalties
- You need to pay less to become free of debt
- You secure your assets
The disadvantages of debt settlement are:
- You need to pay service fees to your debt counseling company
- It will have a negative effect on your credit score and will show up on our credit history for three years after the debt was settled