A Closer Look at Debt and Debt Relief
One-in-eight Canadian households is heavily indebted. This is nearly double the amount since the year 2000. High levels of debt can be an issue for many reasons. The first is the most obvious. When you have a lot of debt, you could find it difficult to manage it and pay it down. This means that you could miss payments or be unable to meet your financial commitments. Just a few missed payments could lead to creditors and collection agencies calling. This is a stressful situation that no one wants to be in. High levels of debt have been linked to a variety of medical situations, from losing sleep to gaining weight to depression.
However, there are other potential issues and risks when you have a lot of debt. Another key one is that, if you’re spending a lot of your income paying down debt, you won’t have much money left over for anything else. This includes savings.
Savings are important. One key type of savings that everyone should have is an emergency fund. Unfortunately, many Canadians are not in a financial position to have an emergency fund or any savings at all. They don’t have any money left over at the end of the month after paying their monthly bills and debt repayments. The more debt you have, the more you have to spend paying it back. This means that, if an unexpected financial expense occurs, you won’t be able to properly handle it.
For example, assume that your car breaks down and you need to spend money to repair it, or that your basement floods and you need to hire a plumber, or that your child needs a medical expense such as glasses or braces that isn’t covered by insurance. These incidents could cost hundreds or even thousands of dollars. Without an emergency fund or any other savings, you might end up putting yourself deeper in debt in order to pay these bills. This could quickly take you from a manageable level of debt to one that is overwhelming.
This is a major issue with having a large amount of debt. Even if you’re currently able to make your monthly payments and not miss any bills, if you have a lot of debt, you could be teetering on the edge. One unexpected expense or one financial setback (such as a job loss) could easily put you in a situation where you can’t pay your bills.
This is how many people end up in debt trouble and why they need to seek debt relief help. They didn’t plan on accumulating this much debt, but once you get a little debt, it’s very easy to get more. So what can you do about it? Here are a few ways that you can find debt relief.
Debt Relief Options
Here are just a few of the debt relief options that may be available to you:
This is where you aim to take out a loan that has a lower interest rate than your current outstanding loans. You then use this loan to pay off your debts which you have right now, which lowers the amount of interest you’ll be expected to pay over time. However, in practice, if you have a high level of debt, you might find it difficult to get a favourable loan.
In a debt settlement, you contact each of your creditors individually and try to reduce the amount that you owe them. While this may work, it’s often tough to get all of your creditors to agree and those who don’t can still take legal action against you to collect their debts.
A consumer proposal is a formal offer filed by a trustee in bankruptcy. This is an offer to your unsecured creditors where you promise to pay less than you owe them in set monthly payments over a period of time. Your remaining debt is forgiven. If the majority of your creditors agree to your consumer proposal, all are bound by its terms and none can seek legal action against you.
In a bankruptcy, a person who is unable to pay their debts as they become due is provided with a process that sees these debts discharged after a period of time. This can only be filed by a trustee in bankruptcy and you receive legal protection from your creditors during the bankruptcy process.
Each of these options is different and what is the best option for one person may not be ideal for another. In order to determine which options are best for you, it’s a good idea to have a financial professional review your situation. For example, a trustee in bankruptcy can sit down with you and look at your financial situation. He or she can then give you important information about the debt relief options that are available to you. This can help you make an informed choice.