How Can Borrowers Benefit from Debt Relief in Canada?

It’s very common for Canadians to find themselves feeling overwhelmed by debt, so anyone in that position should know they are not alone. Some people wind up with unreasonably high debt loads as a result of medical emergencies, while others were never given the financial education required to know how to handle credit cards properly.

Ultimately it doesn’t matter what the initial causes were. With debt relief canada residents can get their finances and lives back on track. Read on to find out how debt relief can help.

What Is Debt Relief?

The term debt relief refers to any strategy for making debt easier to handle. Technically, everything from credit counseling to debt settlement and even bankruptcy filing falls under the general umbrella of debt relief. However, when most people use the term, they are referring to practices such as debt consolidation and consumer proposals, which don’t leave borrowers with black marks on their permanent records.

When to Consider Debt Consolidation

Debt consolidation involves taking out an unsecured loan and using the money to pay off the balances of multiple credit cards. It allows borrowers to simplify their financial obligations and pay off just one bill each month instead of many and often leads to lower interest rates.

Debt consolidation is a good option for people who are having a hard time staying on top of their obligations but have the means to pay back their loans over time, especially if they have lower interest rates and/or monthly payments. It won’t be helpful to those with extremely poor credit, though, as these borrowers are usually unable to secure loans with low interest rates and may wind up paying more in the long run as a result.

When to Consider Consumer Proposals

Consumer proposals are similar to debt settlement options, but instead of going through a private company, Canadian borrowers can engage in this formal, legally binding process with the help of a Licensed Insolvency Trustee (LIT). The LIT helps the debtor develop an offer to pay their creditors a percentage of what’s owed in return for the forgiveness of the rest of the debt.

In some cases, consumer proposals involve not reducing debts but extending the amount of time that the borrower has to pay them off. Either way, this is a good solution for people who have no reasonable way to continue paying their bills, even if they engage in debt consolidation.

When to Consider Bankruptcy

Filing for bankruptcy is a worst-case scenario. In Canada, it occurs when a debtor petitions a LIT and that licensed professional finds that they are insolvent. The LIT then helps to sell off non-exempt assets to generate as much money as possible to pay off the debtor’s creditors, who must then forgive the rest of the debt.

Filing for bankruptcy has long-term consequences. It becomes a part of the borrower’s public record, lowers their credit score, and can make it harder to secure not just loans and credit cards but also housing.

Finding the Right Option

It can be difficult to find the right option to get out of debt. When in doubt, the best thing to do is to schedule a consultation with a debt management specialist. These professionals have an in-depth understanding of all the available options for getting out of debt.