The past few years have not been kind to Canada’s economy. Unlike its southern neighbor, the country avoided a direct hit from the recent financial crisis, but the recession that followed dramatically reduced global demand for the raw materials and finished products for which Canada is known. From the industrial cities of Ontario to the oilfields of Alberta, much production capacity now lies idle, and thousands of once-proud workers struggle to find menial employment in unfamiliar workplaces.
The difficult economy has created a parallel problem that’s just as unfamiliar to most Canadians: crushing debt. As real wages decline across the country, more and more families are being forced to rack up serious credit card balances in order to keep their homes warm and stocked with basic food staples.
If you’re struggling along under a suffocating debt burden, don’t panic. Digging yourself out of debt won’t be easy, but you have several clear options for doing so at your disposal.
Whether you live in Nova Scotia, British Columbia or anywhere in between, you’ll need to weigh your options against the size and cost of your debt as well as your own personal needs. Once you’ve gotten a grip on your predicament, choose the debt relief strategy that’s best for you and begin blazing your way out of trouble.
Your first thought may be to take out a debt consolidation loan and pay off all of your existing debts in one fell swoop.
At first, the typical debt consolidation loan seems like a straightforward arrangement. Lenders make these loans with the expectation that they’ll be used to repay credit card balances, outstanding personal loans and other big unsecured debts. In fact, your debt consolidation lender will generally make these payments directly unless your credit score is unusually strong. From your lender’s perspective, this eliminates some uncertainty from the process and guarantees that you won’t use part of your loan to make an unwise impulse purchase.
Once your existing debts have been paid in full, you’ll be responsible for a single monthly payment on your debt consolidation loan. In addition to being far more convenient than juggling multiple smaller credit card bills, this arrangement has the potential to save you hundreds of dollars per year in redundant interest charges.
If you’re currently paying an average rate of 20 percent on a $10,000 basket of unsecured debts, your interest payments alone are costing you $2,000 per year. That’s equivalent to the standard down payment on a mid-sized car!
Although its exact rate will depend on factors like your credit score and province of residence, your debt consolidation loan might carry an annual interest charge of 10 to 12 percent. On a balance of $10,000, that’s good enough for savings of $800 to $1,000 per year.
While this sounds like a good deal, it’s important to remember that lenders don’t take debt consolidation loans lightly. Unless you have better-than-average credit, you can expect the premium that you pay for your loan to negate any perceived financial benefits. In hard-hit places like Newfoundland or northern Ontario, you may be unable to secure one at all.
What’s more, most lenders place onerous restrictions on these products. Whereas your credit card issuers are only too happy to let you run a balance on your account and fork over small monthly payments comprised mostly of interest, debt consolidation lenders take a different approach to credit.
If your lender’s contract prohibits late or partial payments, make sure that you can afford your monthly bill before agreeing to take on the loan. Defaulting on a debt consolidation loan can have serious, long-lasting repercussions for your financial reputation.
Compared to consolidation loans, debt settlement offers a lower-key, results-oriented approach to debt relief. Unlike costly loans or opaque credit counseling services, the debt settlement process is designed to reduce the principal balances on your outstanding obligations. It’s by far the most cost-effective debt relief solution, reducing past Canadian customers’ debts by an average of 40 to 60 percent.
Since the debt settlement process is likely to shave thousands of dollars off the top of your debt load and stop the remaining balance from accruing interest, you’ll also find it to be substantially less time-intensive than loans or counseling. Depending upon your creditors’ willingness to negotiate, debt settlement typically takes 12 to 48 months from start to finish.
While the debt settlement process isn’t perfect, it’s the only realistic debt relief solution that’s able to reduce the total amount that you owe your creditors. Of course, the scope of your financial troubles and your own personal needs will ultimately determine which course of action is right for you. Choose your next move wisely: If you make the right decision, you may wake up debt-free sooner than you think.
