Credit Relief

For many Canadians, the past few years have been a waking nightmare as wages have stagnated or declined across the country. Save for Alberta’s perennially-booming oil sands region, many areas that depend upon resource extraction, manufacturing and exports for support have been mired in recession for half a decade. In places like northern Quebec and the industrial heartland of southern Ontario, talk of an impending economic recovery is often met with incredulity.

No matter where you live, chances are good that you’ve increased the pace of your credit card spending to compensate for your financial shortcomings. You’re certainly not alone: In recent years, millions of Canadians have maxed out their credit cards just to make ends meet.

At some point, debt becomes dangerous. If you’re suddenly finding it difficult to make your minimum payments and can’t seem to make a dent in your outstanding balances, you need to seek credit relief before things get worse.

There’s no one-size-fits-all solution to crushing debt. You have four basic credit relief options at your disposal: You can declare bankruptcy, take out a debt consolidation loan, call a credit counselor or retain the services of a debt settlement provider.

Your decision will depend on multiple factors, including the current interest rates on each of your loans, the total value of your outstanding debts, the proportion of your debts that are past due, and your credit score.

Although bankruptcy is generally considered a last-resort credit relief option, it can be useful in some situations. Once you file for bankruptcy, you’ll initiate a court-brokered process through which your creditors will eventually seize many of your assets. It can be painful to lose a car or home that you’ve worked for years to pay off at the single stroke of a magistrate’s pen, so you may want to think twice about filing for bankruptcy if you feel that you have a lot to lose in doing so.

On the other hand, it may make sense to declare bankruptcy if you don’t have many assets to your name. In most provinces, your creditors can’t seize your personal vehicle if it’s worth less than $5,000; In Saskatchewan, this vehicle exemption is $10,000. Once you’ve set the process in motion, your creditors will begin dealing with your licensed bankruptcy trustee and stop bothering you at all hours with unreasonable demands. In other words, you’ll finally be able to spend a peaceful Saturday at home without waiting in dread for the phone to ring.

If you’re not ready to declare bankruptcy just yet, you may wish to consider taking out a debt consolidation loan. This product effectively rolls your disparate obligations into a single loan that requires just one monthly payment. The biggest advantage of a debt consolidation loan is its simplicity: It’s hard to forget to pay the only bill that you receive each month.

However, a debt consolidation loan may not do much to reduce the scope of your debt. While your loan may shave a few percentage points from the effective annual interest rate that you’re paying on your outstanding credit card balances, it won’t reduce your principal. In other words, the $10,000 debt balance that you’re carrying right now won’t be worth any less once you’ve paid off your existing creditors with a debt consolidation loan.

Credit counseling is another popular credit relief option. Like debt consolidation loans, this process won’t reduce the principal on your outstanding debts. However, it’s far better than doing nothing: If you’re running significant balances on high-interest credit cards, it may successfully reduce your interest rates by 10 percentage points or more. That represents $1,000 in annual savings on an outstanding balance of $10,000 and $6,000 in total savings over a typical six-year credit counseling course.

Unfortunately, credit counseling will negatively affect your credit score for years to come. If you’re looking for a less painful credit relief option that’s capable of producing even better results, opt for debt settlement instead.

Unlike debt consolidation loans and credit counseling, debt settlement has a proven track record of reducing the principal balances of outstanding unsecured loans. While every debt load is different, you shouldn’t be surprised to see your total balances reduced by 40 to 60 percent over the 12 to 48 months that your debt settlement case may require to complete.

By settling your debts for about half of what you owe in four years or less, you’ll save thousands of dollars more than you would using either debt consolidation loans or credit counseling. While it won’t free you from your obligations overnight, debt settlement may be the best credit relief option at your disposal. If you think it’s right for you, don’t waste another second: Find a provider and get on the road to worry-free living.