Until recently, most Canadians have avoided taking on significant amounts of debt to pay for everyday expenses. Unlike its southern neighbor, Canada has always been known as a stronghold of personal fiscal responsibility.
The recent financial crisis and the recession that it produced dramatically shifted this paradigm. In the past few years, millions of Canadians have taken on crushing debt loads just to keep their heads above water. For many, this is a losing battle: From Newfoundland to Alberta, thousands of folks throw in the towel each year and choose to file for personal bankruptcy.
Chances are good that you’re feeling the pinch as well. If you’ve taken on excessive amounts of debt in an effort to maintain your standard of living, you’ve placed yourself in a precarious position. As your bills mount and the minimum payments on your outstanding obligations grow larger with each new billing cycle, you run the risk of missing a payment and incurring the wrath of your creditors.
If you’re finally ready to break this unhealthy cycle, talk to a debt counseling professional. While debt counseling is just one of several proven methods of reducing the burden of debt, it offers several distinct advantages.
Upon your enrollment in a credit counseling program, the unpleasant phone and e-mail harassment to which you’ve been subjected by your creditors will cease almost immediately. Going forward, they’ll be dealing exclusively with your credit counselor. Rather than have to worry about screening calls from collection-agency representatives, you’ll be able to focus on drawing up a new household budget.
The mechanism behind debt counseling is simple. Once they’ve taken your case, your credit counselor will begin negotiating lower interest rates and more generous repayment schedules with each of your existing creditors. This approach to debt relief has worked well in the past: From British Columbia to Quebec, credit counseling participants have seen the effective interest rates on their credit cards and personal lines of credit slashed by 50 percent or more.
If you’ve missed payments in the past, the average interest rate on your current debt mix could be as high as 25 percent. In this case, credit counseling may save you a significant amount of money. On a $10,000 balance, a 50 percent reduction in your effective annual interest would lower your payments by $1,250 each year.
Many of the non-profit outfits that perform this service receive funding and guidance from banks, credit card companies and other for-profit lenders. This may seem like a conflict of interest, but it’s actually a guarantee of results: Since credit counselors owe a great deal to their big-money benefactors, it would be irresponsible for them to abdicate their responsibility and allow you to default on your obligations.
Likewise, your creditors have an interest in cutting deals that lower your interest rates and permit you more time to repay your outstanding balances. Failure on their part to do so might push you into bankruptcy, in which case they’d be lucky to walk away with more than a fraction of your original balance.
There are a few drawbacks to the debt counseling process. For one, it takes a long time: Depending upon the scope of your debt, it may take five to seven years to work through your program. Credit counseling may also deal a serious blow to your credit score. In this regard, the process is indistinguishable from bankruptcy.
Even after you’re out of debt, the negative credit effects of using debt counseling can linger for several more years. You can’t recover from a painful punch to your credit overnight, and the process of rebuilding your financial reputation can be downright frustrating.
Worse, debt counseling may not be the most cost-effective debt-relief solution. The process merely reduces your interest rates without shrinking the principal balances on your loans. While a $1,250 annual cut to your interest payments translates to $7,500 over six years, you’d be able to save even more than that by shrinking the actual amount that you owe.
Debt settlement can do just that. Like credit counselors, debt settlement providers negotiate directly with creditors to save their clients money. Unlike credit counselors, these professionals have proven to be adept at reducing the principal balances on even the most fearsome debt loads by 40 to 60 percent. On a $10,000 balance that’s accruing interest at a rate of 25 percent each year, this translates into an immediate savings of $5,000 and annual interest savings of $1,250.
What’s more, debt settlement takes far less time than debt counseling. While every case is different, typical work-through times range from 12 to 48 months.
Stop putting off your quest for financial freedom. Make the most important call of your life today and start planning for a debt-free future!
