Today’s consumer attitude towards credit and debt has changed from our parent’s generation. Gone are the days you paid cash for everything and if you didn’t have it, you didn’t buy it.
Today it is common practice to use credit for everything from buying groceries to going on vacations. And many consumers are making the minimum payment instead of paying off the full balance. We promise ourselves that when there is extra money we will make larger payments and that everything is under control. The bill is being paid, so what’s the problem? But as time goes by and you continue to use the credit, the balances increase and so too the payment. You now find yourself cash poor, you are heavily reliant on credit and may be using one form of credit to pay for another. Once the credit limits are reached, the sleepless nights start, the worrying, and the accounts fall behind and you now find yourself avoiding picking up the phone in fear of creditors. No one told you it could be like this. What can you do now?
The first thing to do is to catch your breath and take stock of the situation. Write down your take home income (net income), all of your expenses and see what money is left after the expenses are paid. Compare this amount to what you need to cover your debt payments. Depending on the outcome of your calculations, you may have several options other than the bankruptcy route available to you.
Options Available to You
Remortgaging your home
As a home owner with house equity, one option is remortgaging your home. Essentially your debts are absorbed in your mortgage. The main concern is whether or not you can afford the payments when you retire at a lower income level. You need to ask yourself Is there enough house equity to pay off all the debt or is this merely a band aid solution?
If you are still working you may be able to obtain a consolidation loan to pay off all your debt. With the lower interest rate, there should be a lower payment than keeping all the accounts separate. You will want to stop using your credit cars and focus on paying down the debt.
You can make monthly payments to the creditors through a credit counselling office. In some cases the creditors may cancel or reduce the interest and you normally repay the full balance owed. Be advised that if a creditor chooses to opt out of the debt management program, they may choose to take legal action.
Assuming you have money left over at the end of the month, you may be able to qualify for a Consumer Proposal. In this situation, the creditors are offered a monthly payment over a period of time from one to five years. If the majority of creditors accept it, it is binding for all. One monthly payment is made each month, there is no interest, no legal actions, assets are preserved and typically the amount paid is less than the full balance owed. To qualify the total debt level (excluding the mortgage) must be less than $250,000.00. If the Consumer Proposal is fair, reasonable and shows that creditors will receive more money back than in a bankruptcy, chances are good they will accept. To offer the creditors a Consumer Proposal, you will need to meet with a Licensed Trustee at a bankruptcy firm.
How We Can Help
MNP Limited has helped countless individuals resolve their financial troubles for more than 50 years, for a free consultation to review your financial situation and your options, or for more information please contact Doug Stuive at 905.937.0002