Whether you are over your head in credit card debt or several months behind in paying your bills, it can be overwhelming. Keeping track of multiple creditors and making many monthly payments is difficult, especially if you don’t feel like you are getting anywhere. You may not be able to see a way out. However, it doesn’t have to be like that. There are several options open to Canadians to find debt relief, including creating a debt repayment or management plan with the help of a financial professional.

What Is a Debt Repayment Plan?

Financial professionals often help clients create a realistic debt repayment plan that involves accumulating all the debt into one lump sum. This can help borrowers reduce the amount they spend on interest, and can also bring down your monthly payments. It is important to know that this is not a plan that reduces what you owe to creditors, but rather a strategy to help you pay back every cent you owe. Thus, you submit your payment to your financial professional who, in turn, distributes it to your creditors on your behalf. A debt repayment plan usually lasts for 5 years, after which you should have paid off everything you owe.

Benefits of a Debt Repayment Plan

There are many good reasons that lead Canadians to create a debt repayment plan, such as:

• One payment. A repayment plan lumps all your debt into one single monthly payment. This can relieve a lot of stress because you won’t have to keep track of multiple creditors each month.
• Lower interest rates. Financial professionals, such as a Licensed Insolvency Trustee, can often get you lower interest rates or have them frozen. So, you are spending less on your debt overall. A consumer proposal stops the interest and gives you a set amount to work towards.
• Freedom from debt. Having a structured plan to pay off your debt can help you get there faster. It will also give you a timeline for being debt free.
• Support. A financial professional can offer you support and advice that can help you break bad spending and borrowing habits. So, once you become debt free, you can stay that way.

How to Create a Debt Repayment Plan

Creating a debt repayment plan can be done in a few easy steps, including:

1. Contact a financial professional. Set up an appointment for your first meeting. Ensure that the profession is qualified. Licensed Insolvency Trustees are licensed by the Federal Government but there are lots of companies who are not and they could end up taking your money and not paying down creditors, so choose carefully.
2. Assessment. The financial professional will discuss your options with you and help you make the best decision for your situation.
3. Create a plan. You and your financial professional, a Licensed Insolvency Trustee, will need to discuss what you can afford to pay each month towards your debt. You’ll also need to consider if your creditors will agree with a debt repayment plan.
4. Approach creditors. Once your financial professional has a plan in place. Depending on the path you choose (such as a consumer proposal) a trustee will notify your creditors on your behalf. They will help you work out a settlement that the creditor can agree to.
5. Start paying off your debt. After your creditors have agreed to a consolidation, such as a consumer proposal, you can start making your monthly payments to your trustee. They will ensure that the money is disbursed according to the plan.

Tips for Creating a Debt Repayment Plan

To get out of debt you’ll need a plan. It is important to be realistic and create a timeline that you can stick to. You may also want to talk to a professional about your debt relief options, including consolidating your debt. Here are some tips for creating a debt repayment plan that is right for you:

1. Talk to an Insolvency professional. Talk to a trustee about all your options including filing a consumer proposal or a bankruptcy. They will have some great information and be able to explain all your options while answering a multitude of questions.
2. Use the avalanche method. In this approach, you pay as much money as possible on the debt with the highest interest rates, while still paying the minimum on your other debts. Once the debt with the highest interest rates has been paid off, you roll that payment into one on the debt with the second highest interest rates. Once that one has been paid off, you put the payment towards the debt with the next highest interest rates and so on, until you have paid everything off.
3. Alternatively, try the snowball method of debt repayment. With this approach, you pay as much as you can afford to on the loan with the lowest amount owing. Again, you continue to pay the minimum on your other debts. Once you have paid off the debt with the least amount owing, you roll the payment into the debt with the next smallest balance owing and so on.
4. Take out a debt consolidation loan. Banks and financial institutions offer debt consolidation loans that enable you to borrow enough to pay off your debt. Then, you only have to focus on paying down the consolidation loan.
5. Create a budget. It may sound boring, but a budget can help you keep your spending under control. It is essential to gain a full understanding of your financial situation. However, when you do make a budget, it is just as important to stick to it. So, don’t forget to add a little extra wiggle room for emergencies and unusual expenses.
6. Take a class. While you are paying off your debt, it is also a good idea to develop new money habits. There are many workshops that you can find that will help you learn to budget, control your spending, save money, make wise investments, and even find cost-saving ideas.

No matter how much money you owe or who you owe it to, tackling debt can be a challenge. It is easy to become discouraged when your monthly payments don’t seem to make a dent in your debt. Moreover, the time and energy you invest to keep track of multiple payments can leave you exhausted at the end of the month. If you find yourself in an overwhelming debt situation, understand that you have options that can help you get out of debt and start living a debt-free life.

If you are interested in learning more about debt repayment plans, call Kevin Thatcher & Associates at 1-888-702-9801 or contact us here.