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How To Pay Off Debt Based on What You Can Actually Afford

Do you have a lot of debt? You’re not alone.  

What if I told you there was a solution that can reduce your debt and take all your stress away? Imagine an affordable arrangement where you only need to make one simple monthly payment and don’t have to pay back most of what you owe to the companies you have debt with (including income tax debt). 

Resolving growing debt pressures can be tough. But there are many creative and effective ways to resolve your debt, including: 

  • Combining it by applying for, and then using, a consolidation loan from a bank 
  • Accept a debt reduction plan as promoted by financial experts 
  • File a Consumer Proposal with a Licensed Insolvency Trustee to reduce your debt 
  • Declare bankruptcy with a Licensed Insolvency Trustee and walk away from your debt forever

Why a Consumer Proposal may be your best solution

Of the four strategies listed above, a Consumer Proposal is most likely the best solution available for most Canadians. It allows you to clear up your debt (including credit card, bank and student loans, income tax and GST/HST debt) under the BIA (the Bankruptcy & Insolvency Act). Only a Licensed Insolvency Trustee can use the powerful legislation that comprises the BIA to resolve all of these types of debt pressures. 

Best of all, when you combine your debt into a Consumer Proposal, the amount you end up needing to repay is significantly reduced. All further interest stops at the time of your filing, and you can enjoy the convenience of one monthly payment for the entire duration, based on what you can afford. 

What’s the difference between a Consolidation Loan and a Consumer Proposal?

Although they may sound similar because of the combined monthly payments, there are three big differences: 

  • You must be able to get a consolidation loan. If your credit is already damaged, this could be difficult to do (with or without a co-signer such as a family member) and you could end up with an interest rate that is higher than you can afford. 
  • You’re trading one type of debt for another. Yes, you’ve consolidated your debt, but you still have that new loan to pay off, and it could be a major burden.  
  • The human factor. Once you’ve resolved your multiple debts with a consolidation you must ensure you cancel the cards or the credit lines and not start using them again. Otherwise, you’ll end up with twice as much debt as you had before. 

How we calculate the amount you pay in a Consumer Proposal

The process is surprisingly straightforward. 

The first step (and often the most difficult for many of those with debt) is to reach out to for a free consultation. We meet with you to understand your current situation. This meeting allows you to tell us about the debt you have, the income your household earns, and the things (such as vehicles, property, investments, etc.) you need to protect. You provide us with a list of your debts, proof of your household net income (like a paystub or bank statement), and information on any assets (such as a vehicle or house) you own. 

We then take all this information and assemble it into a Consumer Proposal (which is effectively a settlement offer to your creditors). We build the proposal with you, so it’s both affordable for your budget each month, and acceptable to the companies you owe money.   

For example, let’s say you have debts totaling $40,000. This amount may include a few credit cards, a line of credit, an overdraft account, some CRA tax debt, and even a payday loan or two. The resulting offer we create could be as little as $12,000 to settle all that debt.   

That would translate into an affordable monthly payment of just $200. By filing the Consumer Proposal, you can rid yourself of up to 70% of the debt you owe and stop all further interest.

What happens next?

Once the Consumer Proposal is prepared, we meet to review and then sign a series of documents that comprise it and related information, such as a statement of income and expenses and a list of assets (the things you own) and liabilities (who you owe money to). These documents can either be signed virtually, or in one of our offices. We then file all your paperwork electronically with the Office of the Superintendent of Bankruptcy (OSB). At that moment, the Licensed Insolvency Trustee takes over the management of the process, and you get to enjoy the peace and quiet of your life without collection agents calling repeatedly. 

It’s then our job to notify all your creditors. We give them 45 days to vote on your Consumer Proposal. If a simple majority of your creditors (50% +1) vote to accept by day 45 it becomes official and legally binding on everyone. There is a second deadline 15 days later known as Court Approval. During the entire process, you are under the protection of the BIA. After a Consumer Proposal is accepted, there are just two simple responsibilities you have: 

  1. Make your monthly payments to the Licensed Insolvency Trustee through an automatic withdrawal from your new bank account  
  2. Attend two short counselling sessions with a Licensed Insolvency Counsellor. Each session is one-on-one with your counsellor and last 15 to 30 minutes. The first session focuses on building a budget and cost-saving measures. The second session focuses on financial goals for the future, including credit rebuilding and how to read and understand a credit report

Simple. Effective. Convenient.  

Resolving growing debt pressures can be tough but it’s good to know that at Farber Debt Solutions, you can expect a genuine, straightforward, and non-judgmental partnership, focused on helping you find the right debt solution for your unique situation. If you would like to learn about a Consumer Proposal to reduce your debt, click to arrange your free consultation today. We are here to listen, and to help.