10 Ways to Get out of debt!
If you have assets with some significant equity, such as a home or a car you may be able to use these to get control of your debt. For example, you could get a loan on your home sufficient to pay off your debts. You could be saving a considerable amount of money on interest if you pay off high interest credit card debt in return for lower cost debt.
If you have a car, consider selling it, paying off your debts and buying a cheaper car. Be careful though! Your don't want a "cheaper" car that will cost you a fortune in repair costs.
Use the money from this job to only pay off your debts. List your debts noting the interest rates. Pay off the debts with the highest rates first and work your way down the list.
One of the best steps you can take to get out of debt is to immediately stop using credit cards. At the very least destroy all your cards keeping just one card for emergencies.
Cut back on your expenses and/or use freed up cash to pay down your debts Pay off the debts with the highest rates first and work your way down the list.
A consolidation loan can make lots of sense. Get a loan to pay off all your many debts and have just one payment to make. The new loan usually has a smaller payment and a lower interest rate.
There are two types of credit counsellor; independent credit counsellors and ones who advertise as "non-profit". “Non-profit” credit counsellors perform the same services as independent credit counsellors and have similar training and services. We do not distinguish between the two as they provide similar services and both charge a fee.
Credit counsellors can assist you in acquiring the discipline you need to get control of your debt. Be careful! Many people do not fully understand all the ramifications involved such as:
- Impact on your credit rating.
The credit bureau will record that a proposal is in place. Three years after the proposal is satisfied the record will be removed from the credit bureau.
- Are your payments too high?
Your payments should be high enough to significantly reduce your debt but not so high that you have "no life". If you do not have money left over at the end of the month to pay for the small pleasures in life you may find that you end up defaulting on your payments to the credit counsellor.
- What should your monthly payments be?
We find that Industry Canada Standards on required payments in a bankruptcy are quite accurate in establishing the maximum payments that should be made in a monthly payment schedule set up by a credit counsellor. The standards for 2005/06 are:
- One Person - 50% of take home pay in excess of $1,713/mo;
- Two People - 50% of take home pay in excess of $2,141/mo;
- Family of Three - 50% of take home pay in excess of $2,662/mo;
- Family of Four - 50% of take home pay in excess of $3,223/mo;
- Family of five - 50% of take home pay in excess of $3,603/mo;
For how long should you pay?
Most trustees in bankruptcy feel that the term should be three to four years. It is a stipulation in the Bankruptcy and Insolvency Act that the term for a "Consumer Proposal" be no more than five years. Terms longer than this have a very high failure rate, because people cannot see a "light at the end of the tunnel".
In some cases you can make a proposal to your creditors to set up a payment plan that will allow you to pay your creditors in an orderly way and thus help preserve your credit rating. This operates similar to a debt consolidation loan except you do not borrow the money to pay off your creditors.
You may be able to pay less than 100 cents on the dollar. For example, a relative may be willing to pay a lump sum to the creditor of say 50% of the amount owed in order for the balance of the debt to be written off.
This works best when there are very few creditors.
Residents of some provinces such as Alberta, Saskatchewan, PEI and Nova Scotia can apply for a Consolidation Order. This provision of the Bankruptcy and Insolvency Act allows you to pay off your debts, usually over a three year period, and clears you from credit harassment and wage garnishment.
Under the Bankruptcy and Insolvency Act, a trustee files a Proposal or an arrangement between you and your creditors to have you pay off only a portion of your debts, extend the time you have to pay off the debt, or provide some combination of both. To be acceptable, your creditors must be better off under a Proposal than if you go bankrupt.
Proposals have a number of advantages for the debtor under a great deal of pressure from his creditors:
Stay of Proceedings.
No actions can be taken by creditors such as wage garnishments. If a wage garnishments is in place it will be removed.
Proposals offer a "win-win" situation.
A proposal is good for the creditors because they get more than if the person goes into bankruptcy. It is good for the debtor as he avoids bankruptcy and has his credit bureau report "cleaned" three years after the proposal is satisfied.
Proposal are almost always accepted by the creditors.
Proposals have a very high acceptance rate.
If these alternatives will not work for you, bankruptcy may be the only way for you to get a fresh start. Bankruptcy offers a quick solution to getting out of debt. First time bankrupts are eligible to get out of bankruptcy (and have all debts written off, with some exceptions) in 9 months. More and more people in Canada are going bankrupt.
BankruptcyCanada.com.
