The past half-decade has not been kind to the finances of the average Canadian family. Thanks to chronic macroeconomic issues beyond their control, thousands of Canadians find themselves in increasingly desperate circumstances. Forced by necessity to take on staggering amounts of personal debt, they’re unable to bring their expenditures in line with incomes ravaged by pay cuts and job losses.
Many are considering filing for bankruptcy, a drastic step that would impact their ability to find work and procure credit for years to come. Others have taken the intermediate step of contacting firms that provide credit counseling across Canada.
Don’t assume that you’re immune from the horrors of spiraling debt simply because you’re gainfully employed. From New Brunswick to British Columbia, Canada’s economy has yet to recover fully from the recent recession with the country’s formerly-flush exporters operating at just a shadow of their full potential.
Layoffs, many of which come with little or no warning, remain common across most sectors of the economy. Your financial calculus will change in an instant if you suddenly find yourself on the chopping block.
While it’s possible to manage a growing debt burden through a period of temporary unemployment, you may have trouble keeping current on your bills in the face of an extended bout of joblessness. From Nova Scotia to Manitoba, recession-stung banks are tightening their lending standards and dramatically increasing the minimum monthly payments for their existing customers.
If you’re barely making ends meet as it is, even a small increase in the size of your minimum monthly payment could have devastating consequences. On an outstanding credit card balance of $5,000, a minimum-payment increase from 3 to 6 percent of your total balance plus interest would swell your bill by more than $150 each month. On a balance of $10,000, your statements would grow by more than $300.
If you simply can’t afford such an increase, don’t panic. Filing for bankruptcy often appears attractive at first blush, but it may ultimately cause more problems than it solves. Aside from a few meager assets protected from seizure by provincial bankruptcy laws, you stand to lose a great deal of your net worth to an ill-advised bankruptcy filing. Worse, you’ll find it difficult or impossible to secure new lines of credit for years following your decision.
Although they may carry some drawbacks of their own, credit counseling programs present a safer alternative to bankruptcy. Credit counselors are typically non-profit organizations that may receive some of their funding or guidance from Canadian banks, mortgage lenders, insurers and credit card companies. While this may seem like a classic conflict of interest, many financial firms view their support of credit counseling outfits as a valuable public service.
Credit counseling services offer several advantages over other debt relief providers. Since they’re often creditor-funded, these firms can put a quick stop to the unpleasant stream of harassing phone calls and e-mails that many creditors unleash on their past-due customers. Once you’ve enrolled in a credit counseling program, your counselor will communicate with your creditors on your behalf so that you can focus on building up your cash reserves.
Many Canadian credit counselors are also effective negotiators. Don’t be surprised if your counselor is able to slash the rates on your loans and credit cards in half.
Of course, they’ll expect you to use any savings from this process to pay down your outstanding principal balances.
Credit counseling in Canada does have its share of drawbacks. Most importantly, it can be devastating for your ability to procure credit in the future: Once you’ve enrolled in one of these programs, your creditors may be unwilling to lend to you for years to come.
In fact, managing your debts through credit counseling is little better for your credit score than filing for bankruptcy. Depending on the firm that you use, the process may also involve substantial fees and take upwards of five years. Worst of all, credit counseling does nothing to reduce the principal balances on your outstanding loans and credit cards. In other words, it leaves thousands of dollars in potential savings on the table.
If you’re unsure whether credit counseling is right for you, consider another popular debt relief solution: debt settlement. Unlike credit counselors, debt settlement providers may be able to negotiate significant reductions to the principal amounts of your outstanding obligations. Depending on your creditors’ willingness to negotiate, you may exit the debt settlement process in anywhere from one to four years with less than half of your initial debt load.
Before you make a drastic decision that could cripple your finances for years, consider all of your debt relief options and choose the solution that best fits your needs. If you play your cards right, you may be debt-free in a few short years!
