If your debt has spiralled out of control—make 2015 your year to explore your debt management options…and then act on one.
To help you make a solid financial decision for a positive-credit direction we’ve laid your 5 best debt management options below.
Each of the below options has its benefits and its hardships, so weigh each one carefully…
1. Better Budgeting
If your debt-to-income ratio is at a tolerable amount, and with a little belt-buckling you could climb your way out of debt in a year or couple of years—then strongly consider better budgeting. Our best advice it to write a budget and write down every expenditure (even your morning Starbucks), and then stick to it by monitoring and limiting your spending. To monitor your spending you can either go old school and have a budget book, or high-tech and download a budgeting and expenditure app.
2. Debt Consolidation
While you’re creating a plan for better budgeting, also consider a tandem effort of reducing your debt payment amounts with a debt-consolidation loan. A debt-consolidation loan is a great way to reduce your payments and get out of debt quicker—but of course they’ll only accept your application if you have decent credit.
3. Work with a Credit Counsellor
Working with a credit counsellor will ensure that you have all the information to be able to make smart decisions for your financial well-being. A credit counsellor will come up with a debt-management plan that they will present to your creditors—and once agreed upon will have you making one monthly payment that will pay off your debt in a period of 3-5 years (less for those with smaller debt loads or higher earning potential). An important thing to note is that we’ll create you a plan that will be financially affordable based on your income and needs.
4. Consumer Proposal
If your income-to-debt ratio is so high that there is no hope of you paying it off, your credit counsellor may suggest making a consumer proposal. This involves presenting your creditors with a plan to pay off a only percentage of your debt, which they agree to on hopes that you won’t default on the payments and declare bankruptcy. You will need to discuss the ramifications of a consumer proposal to your credit score—and what that will mean for your future finances. Know that a consumer proposal is not a ‘get out of debt free’ card, you still have to pay a percentage of your debt, and it will stay on your credit record for years.
5. Declare Bankruptcy
Declaring bankruptcy is the end-of-the-road conclusion where you turn over all your assets to a trustee, who then liquidates them to pay the percentage of the debt that they can. You then have to go through the bankruptcy process, eventually obtain an absolute discharge and then wait a number of years until you can apply for small amounts of credit to begin building your credit once again. As with a consumer proposal, you will want to have a serious discussion with your credit counsellor about all the ramifications of going bankrupt that you’ll face, including housing issues, lack of credit, problems in buying a car and more. So this also is far from a ‘get out of jail free card’.
For help deciding which one is right for you, or for advice from a credit professional—call us here at Clear Debt. We can help.