Debt Consolidation How Does It Work And Is There Anything I Cant Include

2015-10-22   minute read

Donna Carson

Financial distress due to unmanageable debt can sneak up on you. When your debt starts to add up and payments begin to fall behind, this is the absolute best time to take a look at your budget and to look at your options. Being pro-active when dealing with debt is one of the best financial gifts you can give yourself. There are usually more options available in the beginning stages and the longer you wait, the stronger the chances will be that some of the original options available to you will no longer be. We can help you identify the right option for your needs.

One of the options to consider at is consolidating your debts. Now you’re wondering, how exactly does debt consolidation work?

Your first step will be to write out a list of all your creditors how much you owe them. Your next step involves writing out your current budget so you are able to gauge what you have left each month to work with after calculating your cost of living. There is an excellent resource available on to help you formally prepare your budget and plan for irregular expenses.

After completing these two steps, if there is room in your budget to pay the debt on your own, try to pay off the highest interest rate debt first. Alternatively, try to pay off one debt in full so that you can see them start to disappear. This will be a confidence boost as you see your hard work and good budgeting begin to pay off.

If it doesn’t all fit in your own budget or your interest rates are too high, one of the ways you can consolidate your debt will be to meet with your bank and see if they can help. Depending on your credit rating, the bank may or may not be able to help with this. Some banks are not able to consolidate any income tax or GST debt. During these more difficult economic times in certain parts of the country, Alberta and Saskatchewan in particular, a lot of lenders are working with people to defer payments. Particularly if you can provide written proof that it’s due to job loss due to the current state of the oil industry.

Other options to consider when you are looking to consolidate your debt are through the Orderly Payment of Debt Program or a Debt Settlement Program. These are ways to pay your debt in full through a structured plan over a shortened period of time, most commonly four years.

Another debt solutions available to you which has been commonly used in recent years, is a Consumer Proposal. A Consumer Proposal is a legislated program administered in Canada through a Licensed Trustee. The big difference with a Consumer proposal, is that it may be a way to write off some of the debt when it is no longer manageable in your budget. For example, depending on your personal circumstances, your creditors can be offered 15-20% of the debt you owe them, with no interest, over a period of time. Some Consumer Proposals are for 100% of the debt, but the advantage is still that there is no interest. This gives you an interest-free way to consolidate your debt. There really is no debt that can’t be included in a proposal, it’s all a matter of the type of debt. Secured debt (ie: a car loan) can be included if you want to get out of the loan.

Student loans debt can also be included. However in some circumstances, you will have to pay them in full, depending on how long you have been out of school. Income tax and GST debt can also be included in a Consumer Proposal. The amount that Canada Revenue Agency will agree to, is going to depend on your personal circumstances.

Deciding which debt solution is the best choice for you will depend entirely on your circumstances. Sitting down early in the process with one of our registered counsellors or Licensed Trustees will help you understand all of your options and make an educated decision that allows you to regain control of your finances and achieve financial freedom!

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