If your family’s financial position is less secure than it was five years ago, you’re not alone. From Newfoundland to Alberta, the recent recession has forced millions of hard-working Canadians to raid their savings and take on an uncomfortable amount of debt to maintain their meager standards of living.
Unfortunately, many of these folks have fallen into arrears on their credit card bills, personal lines of credit and mortgage payments. Despite their best efforts at debt management, they now face the looming threat of foreclosure, vehicle repossession, and crippled credit. In fact, things have gotten so bad across the country that many prudent Canadians are considering taking the drastic step of filing for bankruptcy, which most financial professionals recommend only as a last resort.
If you’re one of them, don’t worry about how you got into your predicament. Chances are good that it’s not entirely your fault.
The global recession that followed the American financial crisis destroyed European and Asian demand for the exports that drive Canada’s economy. This threw countless Canadians out of work and rendered the country’s banks less likely to extend new lines of life-giving credit to struggling businesses.
The rough economy has also made banks stingier about the loans that they’ve already floated. Many Canadian banks and credit card issuers have raised the minimum monthly payments on their credit facilities, some by a factor of two. Monthly payments that totaled just 3 percent of the outstanding balance plus interest in 2007 may now total 6 percent plus interest. This seemingly small difference can add more than $300 in monthly interest charges to a balance of $10,000.
Thanks to these onerous new restrictions, thousands of Canadian families who once had no trouble making their low monthly minimum payments on time suddenly find themselves in dire straits.
There’s no shame in joining their ranks. If you’re barely able to meet your crushing debt obligations each month and worry about missing a payment sooner rather than later, draw up a debt management plan and a get a grip on your finances before it’s too late.
First, stop using all but one of your credit cards. While canceling them may damage your credit score, you can hide them in a basement closet or lockbox to put them out of your mind. Use your single remaining card for emergencies only and pay cash for everyday expenses like food and school supplies.
Next, draw up a realistic household budget that delays unnecessary big-ticket purchases and eschews impulse buys. After all, your kids shouldn’t have to go without new clothes for the upcoming school year because you’ve decided on a whim to purchase the fancy new propane grill that you’ve been eyeing for some time. Set a tight monthly spending limit and don’t waver from it unless warranted by an unforeseen emergency.
You’ll need to bring this same sense of discipline to paying off your existing debts. If you’re running balances on multiple credit cards, choose the card with the highest effective interest rate and commit as much cash as possible each month to paying down its balance. You shouldn’t skimp on food or other necessities to speed this process along, but neither should you interrupt it for a family vacation to the Nova Scotia shore.
Persistence is key to effective debt management. Once you’ve successfully zeroed out the balance on your most expensive credit card, set the next-most expensive card in your sights and devote all of your financial might to eliminating its outstanding balance. Remember, the relentless accrual of interest is your biggest enemy in the credit card game: If you’re paying 20 percent on a total balance of $10,000, you’re lining your creditors’ pockets to the tune of $2,000 per year.
Of course, a self-guided debt management strategy isn’t always sufficient to control a spiraling personal debt crisis. If your best efforts at bringing your spending in line with your income and paying down your existing debts don’t seem to be doing much good, you may require the services of an experienced debt settlement professional.
Unlike credit counselors and debt consolidation loan providers, debt settlement firms negotiate directly with lenders on behalf of their clients to reduce the total amount that they owe. The results can be impressive: While each case is unique, many past Canadian debt settlement customers walked away from the process with their outstanding balances reduced by as much as 40 to 60 percent.
Debt settlement providers also tend to work faster than consolidation lenders or credit counselors. Typical work-through times range from 12 to 48 months.
If your best efforts at debt management aren’t reducing the size or severity of your debt problem, don’t despair. Instead, enlist the services of a proven Canadian debt settlement provider and look forward to a brighter tomorrow!
