Managing Your Debt – Tips, Traps & Options For Consolidating

2015-05-26   minute read

Randy Kobbert

Debt Solutions

Many people experience the difficulty of managing multiple debts and day-to-day expenses that can leave you feeling like you are barely getting by on a monthly basis. You may be stuck in the cycle of bank overdraft or payday loans such that your paycheque leaves your hands as soon as you receive it. As this cycle continues, interest charges will continue to accrue and will soon shut down your ability to continue the process.


It is important to recognize that this is occurring at an early stage in order to take advantage of all your available options in managing your debts. Ideally, you will want to track your monthly expenses to ensure that they do not exceed your monthly disposable income. If you have found that the various creditor payments and interest charges leave you exceeding your income, it’s time to look at the various consolidation options available to help you manage those payments.

Payday Loans

Payday Loans are small short-term loans typically for a few hundred dollars, due for repayment in a short period of time. They are generally designed to help people with one-off, unanticipated expenses and to qualify, the borrower must be employed or have some other steady source of income.

Beware – Payday loans usually cost much more than any other type of loan and should be your last resort. Because of their high cost and the fact you must pay off the loan with interest on your next pay day, you could find yourself in even more trouble when that time comes and into a cycle you will have difficulty escaping.  

Consolidation loan

Individuals with multiple debts can consider applying for a bank consolidation loan. This allows you to make one monthly payment at a fraction of the cash outlay required to pay each of your creditors individually, usually with a lower interest rate.

Each lender has their own criteria for approving individuals for consolidation loans, but generally you must have a good credit score, some collateral to offer as security and have sufficient income to make the monthly payment.  Of the consolidation alternatives, the consolidation loan will leave you with the highest monthly payment.

Debt Consultants and Informal Debt Management Programs

Beware of agencies or consultants who claim they can settle your debts and repair your credit report. It is impossible to change or erase information on your credit report without demonstrating to your creditors that your repayment habits have improved. Also, be wary of those who ask for a large up-front payment before demonstrating any results or even communicating with your creditors. As these services are not regulated by the government and consultants may have little training, do not sign anything or agree to any service of this type before researching the company.

The federal government’s Financial Consumer Agency of Canada (“FCAC”) has issued a warning to consumers about debt settlement claims. For more information click here:

Credit Counselling Services Canada Members

This National Association of non-profit credit counselling agencies offers services such as money management education, credit and debt counselling, debt management plans and online financial tools.

There may, however, be restrictions to the debt management programs offered by credit counsellors that fall short of your needs. For example, they may not be successful in obtaining approval of the debt management plan from all of your unsecured creditors. . As credit counsellors have no formal training or regulatory requirements, their experience and cost of services can vary widely – do your research.

Consumer Proposal

Administered by federally regulated Trustees in Bankruptcy and Proposal Administrators, a Consumer Proposal is a formal debt settlement option available under Bankruptcy and Insolvency Act legislation.

A Consumer Proposal is an option that is appealing to many people. This is a formal settlement offer to all of your unsecured creditors which immediately stops all collection action and requires no up-front fees. It is similar to a consolidation loan in that the settlement is frequently in the form of one monthly payment paid to an administrator, who then distributes the money to your creditors. Approval of the proposal is only required by a simple majority of your creditors in dollar value owed approving of the offer, then it becomes binding on all of your unsecured creditors. The proposal also provides you with the opportunity to settle your debts for a portion of what is owing and stops all interest charges. Also, you have the ability to either continue paying secured creditors (mortgage and car loan) outside the process, or to return the secured assets and be protected for any deficiency that may arise.

A proposal will reflect on your credit for 3 years after repayment has been completed.

An individual must file a proposal with a proposal administrator (who must be a licensed Bankruptcy Trustee). As licensed Bankruptcy Trustees, MNP Ltd. can review all your consolidation options and help you determine if a consumer proposal is the right option for you.


Don’t feel trapped by your debts. Feel free to contact a debt professional at MNP for a free consultation to review your situation and help you determine which option is right for you.

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