A Comprehensive Guide to Debt Help and Relief in Canada
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By Taz Rajan, Bromwich+Smith Staff | 1448 words | Reading Time: 7 minutes| Last update: 2023/08/08
Debt is a reality that many individuals and households in Canada face, and we are hearing these numbers increase every month. While taking on debt may be required when financing important purchases and investments, it can quickly become overwhelming and burdensome. There are sources of good debt, and bad debt it is critical to understand the reality of debt, and the debt relief options in Canada.
The Reality of Debt in Canada:
In Canada, the level of personal debt has been steadily rising over the years. According to recent statistics, the average Canadian household debt-to-income ratio is at a record high with Canadians owing over $1.90 in debt compared to every $1.00 they earn. This means that many Canadians are carrying a significant amount of debt compared to their income, making it challenging to manage their financial obligations.
More than 50% of Canadian households have reported being within $200 of not being able to pay their monthly bills. This is a scary number, as interest rates and household expenses continue to grow.
The impact of debt overload on individuals can be severe. High debt levels often lead to stress, anxiety, and a reduced quality of life. People may struggle to make ends meet, find it difficult to save for the future, and feel trapped in a cycle of debt repayment. It's not uncommon for individuals to experience sleepless nights, strained relationships, and a constant worry about their financial situation.
What is Debt?
Debt is a financial obligation that is the result of borrowing money from lenders or use of credit cards. It comes in various forms, including credit card debt, student loans, mortgages, car loans, and personal loans.
Identifying When Debt Becomes a Problem
While debt is common, it's essential to recognize when it becomes overwhelming. Here are five warning signs that you may be struggling with debt:
Only Making Minimum Payments: If you find yourself consistently making minimum payments on your debts, you are accumulating interest and prolonging your financial burden.
Using Credit to Pay Credit: Relying on one credit source to pay off another is an indication that you are in a debt cycle.
Borrowing from Friends & Family: Turning to friends and family for financial assistance because traditional lenders may no longer consider you creditworthy, and will not extend your credit.
Missing Payments on Due Dates: Regularly missing payments can result in late fees, increased interest rates, and negatively impact your credit score.
Resorting to High-Interest Payday Loans: Turning to payday loans with high interest rates can provide temporary relief but often trap individuals in a cycle of debt due to their large fees.
Recognizing Financial Trouble and Taking Action
Identifying that you are in a cycle of debt is the first step towards finding debt relief. Here are four additional steps to resolving debt problems:
Assess Your Financial Situation: Gather all your financial information, including debts, income, and expenses, to h understand who you owe, and how much you owe. You may be surprised by how much you owe.
Set a Realistic Budget: Develop a budget that allows for essential expenses and allocates any surplus income towards paying down your debts.
Communicate with Creditors: Reach out to your creditors to discuss your financial difficulties. Many creditors are willing to negotiate new repayment terms or will help you set up a payment plan. They want to keep you as a client and want to see payment that will allow for you to stay with them.
Seek Professional Help: Debt relief professionals like a licensed insolvency trustee, can provide guidance and tailor solutions to your specific situation.
Options for Debt Help and Relief
1- Consolidation Loans
Consolidation loans allow you to combine multiple debts into a single loan with a lower interest rate, simplifying your repayments. Different types of consolidation loans are available, such as personal loans, lines of credit, or using home equity as collateral. You will be required to pay the full debt, with interest and fees but typically over a longer period of time.
2- Debt Counselling
Debt counselling programs provide professional guidance to help you manage your debt effectively. Debt counselors can help you create a personalized budget, and provide financial education to prevent future debt problems.
3- Consumer Proposal
A consumer proposal is a powerful alternative to bankruptcy and involves negotiating a settlement with your creditors to repay a portion of your debts over an extended period. Once completed, the remaining debt will be forgiven ( typically repayment plans see your overall debt reduced 60-80%). It provides legal protection from collection actions and allows you to avoid declaring bankruptcy.
4- Bankruptcy
Bankruptcy should be considered as a last resort when all other debt relief options have been exhausted. It provides a legal process to eliminate or reduce your debts while offering a fresh financial start. However, it also has long-term consequences and should be carefully considered.
Being Your Own Advocate
Empowering yourself when it comes to your debt is a powerful thing. Call your creditors, make a payment plan. Educate yourself about personal finance, debt management strategies, and your rights as a borrower. Be responsible for, and make informed decisions and take an active role in your financial well-being.
Understanding the warning signs of overwhelming debt and taking proactive steps is fundamental for finding a path to financial freedom. Whether through consolidation loans, debt counseling, consumer proposals, or bankruptcy, seeking assistance and taking action can provide relief and pave the way towards a brighter financial future.
Licenced Insolvency Trustees, Bromwich+Smith have debt relief specialists available to offer debt advice and debt restructuring entirely from the comfort of your own home. Now offering video appointments with clients, Bromwich+Smith’s Debt Relief Specialists are available for initial free, no obligation, confidential consultation by phone 1.855.884.9243, Live Chat. You can also request a call back at our contact us page.
FAQs for Debt Relief in Canada
1: What is the current state of personal debt in Canada?
The average Canadian household debt-to-income ratio is at a record high, with Canadians owing over $1.90 in debt for every $1.00 they earn. This suggests that many Canadians are dealing with a substantial amount of debt compared to their income, which can make financial management challenging.
2: What are the warning signs that my debt might be becoming unmanageable?
There are five warning signs to watch for: consistently making only minimum payments, using one credit source to pay off another, borrowing from friends and family due to credit issues, missing payment due dates, and resorting to high-interest payday loans.
3: How can I recognize that I'm in a cycle of debt and what steps should I take to address it?
Identifying that you're in a cycle of debt is the first step. Follow these steps: assess your financial situation by gathering all relevant information, create a realistic budget that allocates surplus income for debt repayment, communicate with creditors to negotiate new terms or set up a payment plan, and seek professional help from licensed insolvency trustees for tailored solutions.
4: What are the options for debt relief in Canada?
There are several options for debt relief, including consolidation loans that combine debts with lower interest rates, debt counseling programs to manage debt effectively, consumer proposals to negotiate settlements with creditors, and bankruptcy as a last resort to eliminate or reduce debts. Each option has its considerations and implications.
5: How can I take control of my debt situation and empower myself financially?
Taking control of your debt involves being proactive. Call your creditors, establish a payment plan, educate yourself about personal finance and debt management, and take an active role in your financial decisions. Being informed and responsible can lead to a brighter financial future.
6: When should I consider declaring bankruptcy?
Bankruptcy should be a last resort after exploring other debt-relief options. It offers a legal process to eliminate or reduce debts, providing a fresh financial start. However, it comes with long-term consequences and should be carefully considered based on your specific circumstances.
7: What is a consolidation loan, and how can it help with my debt?
A consolidation loan allows you to combine multiple debts into a single loan with a lower interest rate, simplifying your repayment process. Different types of consolidation loans are available, such as personal loans, lines of credit, or using home equity as collateral. While you'll still need to pay off the full debt with interest and fees, it's typically spread over a longer period.
8: How can debt counseling programs assist me in managing my debt?
Debt counseling programs offer professional guidance to manage your debt effectively. Debt counselors help you create a personalized budget, offer financial education to prevent future debt issues, and provide strategies for better financial management.
9: How do I initiate a conversation with my creditors about my financial difficulties?
Start by reaching out to your creditors to discuss your situation honestly. Many creditors are willing to work with you and may offer new repayment terms or help you set up a payment plan. Clear communication is crucial in finding a solution that allows you to manage your debt while maintaining a positive relationship with your creditors.
By Taz Rajan Community Engagement Partner at Bromwich+Smith
Taz has been in the finance industry for nearly 2 decades and has always been passionate about education and empowerment. Having declared bankruptcy herself, she intimately understands the shame, stigma surrounding matters of debt as well as the joy and relief that comes from restructuring. Taz actively works to normalize the conversation of debt through blogs, media interviews, webinars, lunch & learns and through building relationship.