In Canada, there are a number of commonly used ways to get out of debt. Each consolidation option has pros and cons, and which is best for you may not be the best option for someone else. We have provided a brief summary of each option in this article to hopefully help make things easier for you.
1. Debt Consolidation Loan
A debt consolidation loan is where a finance company, such as a bank or a credit union, provides you with the money to pay off all of your debts. They then consolidate all of your debts into one affordable monthly payment and require you to pay this back monthly until the debt is cleared. The fees involved in this kind of service are generally low, and it removes the need to speak to your creditors and the anxiety this involves. It’s wise to note that unsecured debt consolidation loans and unsecured business loans surrounding consolidation often come with high interest, so they are not always the best option.
2. Consumer Proposal
A consumer proposal is a government-run debt relief option. Administered by a licensed insolvency trustee, consumer proposals were introduced to try and reduce the amount of debt settlement activity happening throughout the country. In this, you will be expected to repay around 1/3 of what you owe, although the figures do vary depending on your circumstances. There are no costs to pay, unlike with traditional debt consolidation, and a consumer proposal has the same effect on your credit score as a debt management plan. You can learn more here.
3. A Line of Credit/Credit Card
If you only have a small amount of debt to pay, a line of credit/credit card may be your best option. They are, however, quite difficult to qualify for unless you have a good income and a good credit score. That said, if you do qualify, it will give you the freedom to pay your debt off in your own time as the minimum monthly payments provide great flexibility. But, if you aren’t disciplined enough to pay back your debt, you could end up in even more debt than you started with.
4. Ask Family and Friends
Another option is to ask family and friends if you could borrow the money from them and then repay them at an agreed time. It’s best not to be too annoyed, though, if they refuse. Lending money to friends can cause a lot of problems if the debt is unable to be repaid, and not everyone can comfortably forgive the money they have lost if you are unable to make repayments. This can cause irreparable damage to a relationship. With that said, though, if you do have someone who is willing to offer you the money, it is a step worth considering.
Which debt relief option is best for you will depend on the amount of debt you owe, your current income and credit score, and how close you are to bankruptcy. Don’t be afraid to get personal advice before making a choice.
