WHAT IS DEBT CONSOLIDATION?
According to the Bank of Canada, the average Consumer Debt (excluding mortgages) held by Canadians is $20,759. As most Debt Experts will tell you if you owe more than $20,000 it gets harder to make a payment that is substantial enough to pay down your interest. As a result, your debt keeps growing regardless of how hard you try to keep it under control. If you are one of the many Canadians struggling with debt, there is hope, and viable options to help you deal with your debt in a timely manner.
Debt Consolidation
One of the most popular debt solutions is Debt Consolidation. In its broadest terms, Debt Consolidation means taking out a loan at a lower interest rate to pay off your smaller debts, creating one payment at a lower interest rate. So, if Debt Consolidation is that easy, why aren’t more Canadians taking advantage of it?
Debt Consolidation Pros and Cons
Historically, getting a Consolidation Loan through your bank or credit union will garner you the best interest rate. However, if your credit rating is less than ideal, your income doesn’t fit with their requirements, if you don’t have enough equity to guarantee the loan, or if you don’t have a credible co-signer you will not be approved for a consolidation loan.
There are solid advantages to getting a Debt Consolidation Loan. You can use existing assets, like your house, as collateral. Your credit rating will be protected from further debt damage. Your creditors will be paid in full, leaving you to make one payment at a lower interest rate ensuring your debt will be paid off quickly.
However, there is one advantage of debt consolidation that can also be a real disadvantage; you will be able to keep your credit cards. Because debt consolidation is basically treating the symptoms of your debt, and not addressing how you initially got into debt you run the risk of incurring more debt in the future. So if you’ve been living off your credit cards and you don’t have a plan to stop or decrease their use, this could be a real problem for you.
Another point to consider if proceeding with Debt Consolidation, if the bank does approve your consolidation loan, they will not be as forgiving as your credit card company is with missed payments. If you used your home as collateral, you risk losing it should you fall behind in your payments. If you had someone co-sign for the loan and you miss payments, your co-signer will be responsible to cover your debt.
Navigating Debt Consolidation
Unfortunately for many Canadians, they just don’t qualify for a Debt Consolidation loan. So, are they forced to live with debt for the rest of their lives? Not at all. This is where a reputable Debt Consulting Company like 4 Pillars can help. 4 Pillars Debt Solutions has been helping Canadians settle their debt for over 15 years. A 4 Pillars Debt Specialist is a compassionate financial expert who can guide you thru your debt settlement process, making it as painless as possible.
Your 4 Pillars Debt Specialist will go over your situation to determine the best strategy for you. If it is decided that Debt Consolidation is the way to go, they will create a plan to help you achieve this. They will also put together a plan that will see you debt free within 5 years. And unlike other debt companies, they will help you strengthen your credit score and give you the tools to avoid the credit card traps that contributed to your debt in the first place.
Consumer Proposal and Bankruptcy
Depending on your situation Debt Consolidation may not be an option. However, your 4 Pillars Debt Specialist will find a debt relief solution for you. Jennifer Virani, a 4 Pillars Debt Specialist in North Vancouver had a client who was almost $60,000 in debt. She was single, a renter, and didn’t have anyone she felt comfortable asking to co-sign a loan. In this case, her best option was filing for a Consumer Proposal.
According to the Government of Canada, a Consumer Proposal is a ‘formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT)’ this allows you to create a debt repayment plan based on your budget and your unique situation. The term of a consumer proposal cannot exceed five years. Payments are made through the LIT, and the LIT uses that money to pay each of your creditors’.
By taking the Consumer Proposal, Jennifer worked with the client to create a sustainable budget and then worked with the Trustee to offer a repayment plan to reduce her client’s debt by 75%, allowing her a manageable monthly payment that will see her debt free within five years. Though filing the Consumer Proposal did drop her client’s credit score and she was left without her credit cards, Jennifer and the 4 Pillars team is helping her rebuild her credit, and acquire a new credit card for life’s essential purchases , all while giving her the educations and tools to stay out of debt in the future.
Filing for Bankruptcy is always your last resort. As defined by the Government of Canada… ‘Governed by the Bankruptcy and Insolvency Act, bankruptcy is a formal process whereby debtors who cannot meet their obligations sign over all of their assets—except those exempt by law—to a Licensed Insolvency Trustee (LIT). The LIT’s role includes selling off those assets to satisfy outstanding debts. Once debtors are formally declared bankrupt, lawsuits by creditors are stayed and garnishments against debtors’ salaries stop.’
Filing for Bankruptcy should never be taken lightly and it is not recommended you proceed without independent advice. An advocate like 4 Pillars Debt Consulting can help navigate through all aspects of dealing with debt working on your behalf. Should Bankruptcy be your only option, your 4 Pillars Debt Specialist will be by your side every step of the way.
Just One Last Thing…
In an ideal world Debt Consolidation will be your best option to efficiently deal with your debt. You can apply for a Consolidation Loan on your own with your local bank or credit union, but it is recommended you review all your options first and seek the assistance of a Debt Consolidation Service. An experienced and reputable debt company like 4 Pillars North Vancouver Debt Solutions will be in a better position to provide impartial advice and and work with you to ensure you avoid the pitfalls of debt in the future.
About the Author
Jennifer Virani is a Debt Specialist with 4 Pillars Debt Solutions in North Vancouver, BC. Jennifer has a great deal of experience with Debt Consolidation as well as other debt settlement options. If you’d like to discuss your debt options with Jennifer call her at (604) 612-9211.
To learn more log onto 4 Pillars.ca to find a 4 Pillars Debt Specialist near you.
