Credit is a serious necessity in today’s world, which means the majority of people have at least one form of credit, if not several. But with the influx of credit comes the influx of debt. Generally speaking credit creates debt and while some people are able to use their credit and then pay off their debt right away, others aren’t. Life happens and so goes debt, we understand this, that’s why we think it’s extremely important for you to know what your options are for getting out of debt, and we don’t think bankruptcy is your only option. Debt is a scary thing that’s why people often panic, think the worse and convince themselves that they’ll have to file for bankruptcy. Bankruptcy is a worst case scenario and should only be filed if all other options have been exhausted. Here are all the options you need to know about before you decide to file for bankruptcy.
Has your debt become a serious problem?
When dealing with debt you need to be completely honest with yourself, avoiding the issue will only make things worse in the future. The best thing you can do to start is figure out if you can deal with your debt problem on your own or if you need to ask for help.
Start by getting organized and make a few lists, who do you owe money to? How much money do you owe these people/ companies/ organizations? Are you up to date with your payments or have you fallen behind? Once you have a better idea about what is happening with you debt(s) you can create a plan.
What does your credit history look like?
Anyone who has some form of credit has a credit history. Your credit history tells the story of your spending habits and accesses how well you handle your finances. If you’ve come to terms with your finances and feel like you have a serious debt problem then it will definitely be obvious in your credit history. If you’ve realized that your debt problem isn’t quite as bad as you had thought then that will also show up on your credit history.
So what you need to do is request a copy of your credit history and maybe even pay for your credit score. This way you’ll have a concrete answer and know exactly what you’re dealing with.
Get help or do it alone?
Once you’ve been honest with yourself, got organized and figured out what your credit history looks like you need to decide what your next step is going to be. Will cutting back on your spending allow you to focus more of your money on debt repayment? Or do you feel like you’re in over your head? Whatever you decide we always suggest avoiding bankruptcy if possible. Bankruptcy will affect your life for a very long time and therefore should be taken very seriously. Try not to jump to an extreme decision as there are several options you can choose from, ones what don’t involve
Option 1 – Consolidation Loan
If your debt is just starting to get out of hand and your credit history is relatively good then you might want to look into refinancing your debt through a consolidation loan. With this option you’ll consolidate (bring together) all your debts into one affordable monthly payment. A consolidation loan is significantly easier to manage, especially if you have several credit accounts and find it hard to remember who to pay when. Here are few things you should remember when deciding whether or not a consolidation loan is the best fit for you.
- The interest rate on the consolidation loan should be lower than the ones associated with your credit accounts. If it’s higher, you’ll be paying more than you were before.
- Once you’ve consolidated all your credit accounts, stop using them irresponsibly. But do not close them, this will only hurt your credit score.
With a consolidation loan you’ll still have to pay off all the money you owe and work hard to make your monthly payment on time and full so make sure you’re willing to put the effort in.
Option 2 – Debt Management Program
If you’re currently keeping up with your debt payments but feel like you won’t be able to continue and need a bit of a break, then a debt management program is probably the best option for you. You’ll work with a credit counsellor but will still have to pay off your debts in full. Your credit counsellor will:
- Create a budget that you can afford to keep up with.
- Negotiate with your creditors on your behalf and ask for your monthly payments to be lowered so that they’ll fit you budget.
- Administer your payments to the appropriate creditors.
With a debt management program you’ll receive some help but will still have the satisfaction of paying off all the money you owe.
Option 3 – Consumer Proposal
If you’re debts have become too much for your to handle and you don’t have enough money to pay them all then a consumer proposal is a good option. Much like bankruptcy, a consumer proposal is a legal proceeding administered by a bankruptcy trustee. Your trustee will be responsible for figuring out how much of your debt you can afford to pay back, you will have no say. Once your trustee decides they will present your creditors with your consumer proposal. Your creditors have the right to reject your proposal; more often than not they will accept your proposal.
Option 4 – Bankruptcy
Sometimes bankruptcy is the only option that makes sense and cannot be avoided. When this happens it’s best to get in contact with a bankruptcy trustee right away and start the proceedings. Your trustee has your best interests in mind so if they feel like a consumer proposal is a better choice for you, they will suggest it. Here are few things to remember if you’re currently thinking about filing for bankruptcy:
- A bankruptcy has the worst possible effect on your credit report and score.
- It will be extremely hard to get new credit after all your debts have been discharged.
- Certain occupations forbid the filing of bankruptcy
- You will lose the majority of your assets
- Filing for a second bankruptcy will be an extremely demanding process and therefore bankruptcy should be seen as a once in a life time option.
The most important thing you can do is inform yourself about your options. Bankruptcy is not the only solution to debt, that’s why we believe it’s very important to no rush in to anything. Dealing with debt is not easy so if you feel like you need help, whether it’s a lot of help or just a little bit, you should definitely ask for it.