Debt Relief: Knowing and Understanding Your Options

Debt consolidation, debt management plan and consumer proposal may be terms that are not familiar, but they should be if you need help with your debt. That is what a Licensed Insolvency Trustee (LIT) is here for; to help you understand the debt relief options available.

Here is a quick overview of some available solutions to help you understand your options, and how you may be able to apply them to your debt relief plan to make your debt more manageable and help you avoid bankruptcy.

* Debt Consolidation: Debt consolidation involves combining several debts into one debt in order to simplify the repayment process. If you choose debt consolidation as the right option for you, it is important to obtain a loan with an interest rate that is lower than your other current loans. By combining your higher interest debts into one debt with a lower interest rate, you will effectively save money on interest payments. You can then put this money towards repaying your loan more quickly.

* Debt Management Plan: Working with a credit counsellor, you enter into an informal agreement, or a debt management plan or program, with your creditors in order to reduce your interest rates and thus reduce your payments.

As it is an informal plan, it is not legally binding on all creditors. This type of arrangement does not guarantee that all of your creditors will agree to the plan. It is also important to note that these types of programs may involve service or management fees, and that you will still pay 100% of your debts, compared to a consumer proposal that commonly offers a compromise on the amount of debt outstanding. Make sure to ask these questions when you meet with the credit counsellor.

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* Consumer Proposal: A consumer proposal is a formal agreement between you and your creditors in which you typically agree to pay back a reduced portion of your unsecured loans, with no fees or interest charges. A consumer proposal will also stop collection calls, wage garnishments, and bind all creditors to the same plan.

As opposed to declaring bankruptcy, filing a consumer proposal may be optimal, as you keep all of your assets and belongings. An LIT will first review your financial situation, answer all of your questions, and help you choose the best debt repayment option for you.

When it comes to debt repayment, it pays to know the different debt options that are available to you. Before reaching the point of no return, look into these options and other DIY debt relief solutions to reduce your debt and regain financial control.

Keep an eye out for my next column for more #DebtSolutions and join the conversation.