We have all been through challenging times in our lives when we have to make hard financial decisions. From job loss, sickness, injury, to marital breakdown. These are all situations that can affect our ability to pay our debts. These situations obviously lead to an extreme amount of stress being felt by all of the parties involved. Do NOT let these stressful events lead you into making the following poor short term decisions.
IGNORING YOUR CREDITORS WITHOUT HAVING A SOLID PLAN IN PLACE TO DEAL WITH YOUR DEBT.
If you do this, your debt will continue to spiral out of control and the creditors will become more aggressive to try and recover the money owed such as seizing assets and/or garnishing wages. Have a debt reduction plan developed by someone who works on your behalf and with your best interest in mind. The plan should be based on your ability to pay, and should fit within your short and long term goals.
TAKING ADVICE FROM SOMEONE WHO IS NOT WORKING SOLELY ON YOUR BEHALF
Do your homework. This will be one of your most important decisions. Who do I want to represent me when putting together a plan to deal with my debt? When meeting with someone, ask them if they work only for you? The choice you make can ultimately end up either saving or costing you money. 4 Pillars knows that an informed debtor will always choose to have their own representation.
USING HOME EQUITY TO PAY UNSECURED DEBT
By putting your unsecured debt into a new first, or worse, 2nd mortgage, you are basically now securing that debt to your biggest asset, your home. The issue here is that a lot of Canadians are now mortgaged to the maximum because getting a home equity line of credit or second mortgage appears to be the smart thing to do. Unfortunately, if there is a correction in the housing market and values decrease then a lot of Canadians will owe more than what the property is worth. Furthermore, when interest rates go up from historically low levels we are currently experiencing, these new larger payments could now be unaffordable. Don’t get me wrong, refinancing can work very well in certain situations but all options should be considered.
HIGH RISK LENDERS
Unfortunately, high risk lenders are everywhere. The reason for this is because of the large amount of Canadians who do not qualify for credit at a traditional bank. They are lenders of last resort. Do not fall into this debt trap paying their high interest. It is a cycle that is very difficult to break free from. If you cannot afford to pay your debts now, obtaining a high interest loan to consolidate your payments will be no more affordable for your budget. If you find yourself considering a high risk lender, STOP!
About the Author
Scott Patton operates the 4 Pillars Kitchener, ON Debt Restructuring office. To contact him directly visit his website or call him directly at 519-502-9227.
