Debt Management

Debt Management Topics

DEBT MANAGEMENT:

If you feel that your financial situation is getting worse or deteriorating, there are a number of preliminary steps you can take to resolve your situation without participating in a formal legal process (such as bankruptcy). The first step is to sit down and examine your household budget. You need to determine if there are ways to cut back on some of your monthly expenses. If you debt load is high, some financial institutions offer debt-consolidation loans. These loans are designed so you can pay off most (if not all) of your debts at the same time, leaving you with only one outstanding loan to pay each month. Of course, there are a number of disadvantages to these types of loans, including high interest rates (making it difficult to pay them off over time) and the possibility that, due to your current debt load, you may not qualify for such a loan.

If your bank will not agree to provide you with a consolidation loan you can try to negotiate directly with your creditors one-by-one. This can often be a difficult and time-consuming process. People also consider cashing out their RRSPs to utilize those funds to reduce their debts. This may not be advisable as you may be able to keep these assets by filing for bankruptcy protection or by offering your creditors a settlement offer through a consumer proposal filing. Failing that, if you own a home you could attempt to borrow against the available equity.

• Managing your debts without a formal process allows you to avoid bankruptcy or a proposal
• You can rebuild your credit rating over time (normally 7 years from when debts are paid in full)
• There is no guarantee all of your creditors will be willing to work directly with you
• Some consolidation loans come with much higher interest rates & take longer to pay off
• Cashing in an asset such as an RRSP will leave you without a retirement nest egg & there are tax liabilities

DEBT MANAGEMENT TOPICS:

• Warning Signs of a Potential Debt Problem
• Your Legal Options
• Credit Counsellor versus Trustee
• Glossary of Insolvency Terms