Financial troubles can be very difficult to manage, and you may find yourself drowning in more debt and have so many bills to a point where they become unmanageable—in situations where your assets are limited, and you have no extra income, paying off your debts may not be realistic. Luckily, there are ways to help you discharge your debts using the assets that you have to help deal with your creditors and arrest any legal action they may be taken against you. The first that usually comes to mind is through filing for bankruptcy.
When you file for bankruptcy, you find a trustee to whom you surrender all of your non-exempt assets. The trustee will take your assets and turn them into cash to pay off all of your creditors so you can be discharged from all or most of your debts. However, bankruptcy can pose a major negative impact on your overall credit, and require you to part with quite a few assets other than those that are essential for your living and working.
Additionally, there are certain types of debts that are excluded from bankruptcy, including secured debts (mortgage or car loans), student loans that are less than 7 years old, and child and alimony support payments. There is also a fee associated with bankruptcy and takes a minimum of 9 months of payments to be discharged, with the possibility of further delay. For this reason, there are alternatives to bankruptcy that are sometimes not as widely known, but, nonetheless, they are used more often than bankruptcy. You should be aware of all your options before making any important financial decisions, so let us walk you through some of your alternatives to bankruptcy.
Careful budgeting and debt repayment
- This is one of the most straightforward alternatives to bankruptcy. If you are struggling to pay many debts, you have to ask yourself whether these debts are absolutely unmanageable on your own. Or, will a carefully designed budget allow you to set aside enough money to pay them off? The key to succeeding through debt repayment is to create a realistic but strict budget, where you cut down on all types of expenses not considered essential for living. Try to live off of the minimum requirements for a while and direct as much extra money as you can towards paying off your debts. Remember, pay the minimums to all, any extra funds would go to the debt with the highest interest rate.
- Once you’ve created your monthly budget, organize your list of creditors and the amount of money you owe to each one. Once this information is organized, you can determine how much money is available for each of your debts and how long it will take for you to be completely debt-free.
- It’s important to keep in mind that repaying your debts on your own is a simple way to avoid any other third-party intervention. However, if debt repayment through budgeting won’t help you repay your loans within about five years at most, then this may not be the option for you.
Create a Consumer Proposal to eliminate your debt
- A commonly used option for individuals struggling with debts is to use a consumer proposal. A consumer proposal serves as an agreement between you and your creditors regarding how your debts will be settled. A licensed insolvency trustee will be in the middle and help negotiate with your creditors on your behalf so that you can agree about how your debts will be settled.
- Consumer proposals have proven to be very effective. They can help you negotiate an extremely low settlement so that you may only have to pay less than 50 percent of your total owing amount. This means the burden of your debt will be reduced significantly, and you can make larger monthly payments if your financial situation improves to pay off your debt faster and stops the interest charges.
- Creditors understand that when an individual puts forth a consumer proposal, they aren’t too far from bankruptcy. Creditors also understand that if they work to negotiate the terms of a consumer proposal, they will receive more money than they would if an individual files for bankruptcy. In order to salvage the most money for themselves, creditors will be more inclined to agree to a consumer proposal. That being said, there is a possibility that your creditors could refuse your proposal. Ultimately, though, a consumer proposal benefits both the creditor and the debtor.
Refinance your debt with a debt consolidation loan
- Organization is essential when you’re in debt. Knowing who your creditors are and how much you owe each one is key to ensuring that you keep up with all of your payments. For this reason, a debt consolidation loan is used to help combine several loans into one single loan. If you receive a debt consolidation loan, you use the money you receive to pay off all of your debts and then focus all of your attention on one single loan.
- The single consolidated loan can now be your main focus, and it usually has a lower interest rate compared to your other individual debts that you were previously paying. Although you are still making payments to pay off a debt, paying a single, low-interest debt is significantly more manageable.
- The key here is that the overall interest rate is lowered.
Utilize a debt management plan to repay your debts
- This option involves a debt management plan, which is filed by a credit counselling agency on your behalf. This plan allows you to consolidate your debt without the need to qualify for a new loan, which is usually beneficial for individuals with bad credit. You will be required to repay all of your debts in full, but the one helpful aspect of this option is the possibility of qualifying for interest relief.
- The credit counselling agency will be able to use the debt management plan to help you if you have a consistent income, but are having difficulty with the mounting interest on your debts. Therefore, your credit counsellor can help arrange a debt repayment plan with a low-interest rate or, ideally, no interest at all.
Negotiating your debt with your creditor
- Negotiating is another option that is done by someone else, such as a lawyer, on your behalf. Again, negotiating your debt requires that you pay back your loan, but it is a way to help you if your financial situation will be improving in the upcoming future. If you are projected to return to work within a month or two, for example, you can ask your creditors to suspend or lower your monthly payments temporarily until your financial situation improves. Creditors will be more likely to negotiate the terms of your payments if you approach them before you fall too far behind in your payments.
Just as individual financial situations can differ from one person to the next, so do the solutions to your financial problems. There are pros and cons to each of the options described above. In order to make the right decision for you, speak to a debt expert to get the right advice for your situation. At Kevin Thatcher and Associates, we offer you expert and personalized financial advice. Let our team help you steer through your financial troubles and work towards a debt-free future. We specialize in bankruptcy, consumer proposals, and debt consolidation. Call Kevin Thatcher and Associates at 1-888-329-5198 to book your free consultation today or visit our website here to learn more about what we have to offer.