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Debt Help For Canadians: 4 Debt Solutions Canadians Use, And How They Work

For Canadians who are facing a serious debt or credit problem, this article will serve as a place to turn to for help. Most Canadians can only think of 2 options when it comes to debt help: consumer credit counselling and bankruptcy. The promise of this article is that by the time you finish reading it, you'll know about twice as many possible debt solutions as most other Canadians think are available.

What they aren't aware of is that there are at least 5 options you have for professionally solving your debt problems.

We'll explore 4 of these here, and describe the basics of how each one of them works.

1. Bankruptcy

As for bankruptcy, you simply file a declaration of bankruptcy, and the process begins.

* Bankruptcy is usually the worst of any of the choices listed here.
* The bankruptcy process involves lawyers, repossessions, lean-tos, and a host of other undesirable aspects
* Bankruptcy causes immense emotional havoc
* You get 7 years of bad credit. That is, it stays on your record for 7 years. Anyone you allow to have access to your credit rating will be able to see this for the next 7 years.
* For most Canadians who are aware of all of their options, bankruptcy isn't the best option

2. Consumer Credit Counselling

Although consumer credit counselling is the most established alternative to bankruptcy, it's not the best choice for most Canadians, especially when you consider it's drawbacks.

Keep that in mind as you read the rest of this article. We'll compare a few aspects of consumer credit counselling with other options, and help you decide which one's best for you.

3. Debt Consolidation

Though not as well-known as bankruptcy or credit counselling, debt consolidation can be an appealing option for you...if you get the loan.

You see, debt consolidation works by taking out a loan that covers all your outstanding debts. Then, instead of being behind on your outstanding debts, you'd be all paid up, and only have to pay off the debt consolidation loan.

This is good for Canadians who are behind on more than 1 loan.

The way a person goes about this is simple, but it's not necessarily easy to get approval for.

* A person realizes that they are behind on one or more of their loans.
* They go to their bank, or some appropriate lending institution, and apply for a debt consolidation loan. As alluded to above, this debt consolidation loan is large enough to cover the debts they were initially behind on.
* Part of the debt consolidation loan application process is the understanding that the loan, if granted, is to be used to pay off all the debts the borrower was behind on.
* The debt consolidation loan is either granted or not, depending on the bank's decision. This decision, in turn, is based on a number of factors, such as the applicant's financial history, credit rating, and the current financial situation of the world.
* The loan is usually customized to each individual who applies. The amount of the loan, the monthly payment amount, and the interest are customized to the borrower. Usually, the monthly payment is something the borrower can afford, which is part of the reason why they're applying in the first place.

If granted, the loan is used to pay off your outstanding debts. Then, instead of having to pay off your previous loans, you only have one loan to pay off: the one granted to you by the bank.

Debt consolidation can be a very good option for Canadians, however, there are 2 drawbacks:

First, due to the current world economic situation, banks may be afraid to grant debt consolidation loans, or they may make it harder to qualify for one

Second, though the monthly payments of the debt consolidation loan may be something you can afford, you may end up paying monthly fees for a long time...and at a high interest rate

Finally, there's a fourth option that may be better than any of the previous 3 mentioned above.

4. Debt Settlement

How would you like a professional who understands the Canadian loans and credit industry to be by your side?

This person isn't a lawyer, just a good negotiator.

This person, or company, will negotiate with the bank or lending institution that you're in debt to, regardless of whether it's the Royal Bank of Canada, the CIBC, or most other financial institutions in Canada, to get a reduction in the principal of your debt. This reduction can be anywhere from 40-80%.

Because of this debt reduction, debt settlement is very different from consumer credit counselling. Credit counselling only reduces your interest rate, not your principal. With credit counselling, you ultimately end up paying the same amount you owed to begin with, except over a longer period of time. Another negative about credit counselling is that you also end up with a monthly fee from the credit counselling company, even if they state that they're non-profit.

On the other hand, with the right debt settlement company, you only pay for results. That is, the company doesn't get paid unless they can save you money. A lot of debt settlement programs are organized such that you only pay a percentage of what the company saves you, and you only pay that percentage once, not on an on-going basis as you would with credit counselling.

It's in your best interest to pay off as little of your as possible, and have it settled at that.

Debt settlement is in very sharp contrast to credit counselling, because credit counselling, even not-for-profit credit counselling, charges you from the moment you enroll...regardless of when they're able to reduce your interest rate.

And the fees you pay with credit counselling are ongoing, completely offsetting any reduction in interest it may save you.

Debt settlement, on the other hand, is a one-time fee...only if it saves you money.

With debt settlement, you only pay for results...not empty promises.

With credit counselling, your credit rating will be hurt even more, because if you apply for credit counselling, an R7 goes on your credit record, and stays there for at least 2 to 3 years. Potential grantors, land lords, and anyone who has access to your credit record will be able to see that you've had credit problems and used credit counselling.

Debt settlement doesn't go on your credit rating at all. And, debt settlement companies can usually help you repair your credit after all your debts are dramatically reduced and paid off.

For most Canadians, debt settlement is the best way to eliminate your debt.

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