Skip to content
The cost of living is squeezing Canadians’ pay cheques. One in ten say their paycheques don’t cover their living expenses. Many are also carrying more debt than they can manage. If you’re in this situation, you may have to choose between paying your bills and debt repayment. Let’s look at practical steps you can take to cover your living expenses, when to stop paying creditors and how to get rid of debt.
Focus on Affordability
If you’re experiencing financial stress right now, you’re not alone. Two issues currently concerning Canadians are the cost of living and US tariffs. Prices are already high, and tariffs could cause further increases. Prioritizing your needs and paying for those first will reduce some of your stress.
Expenses to focus on before repaying your debt are:
- Groceries: Having enough food for yourself and your family is essential.
- Housing: Keep your rent or mortgage payment up to date so you have a place to live.
- Utilities: Heat, electricity and water are necessities.
- Transportation: Having enough money to get to work and other places you need to go.
Other expenses, such as insurance, cell phone bills, cable, and internet, may be negotiable if you talk to your providers. However, once you cover your expenses, maybe you do not have enough money for debt repayment.
Debt types
There are two types of debt: secured and unsecured. If you stop paying your lenders, the consequences will vary depending on the kind of debt.
Secured debt is debt that is backed by an asset. Two common types of secured debt are mortgages secured by a home and car loans that use the car as security.
When you fail to make payments on a secured debt, the lender can take back the asset and sell it to recover their money. If, for example, you fail to make your mortgage payments, you could lose your home. Failing to pay your car loan can lead to the loss of your vehicle.
Unsecured debt is not secured by any type of asset or collateral. Failing to pay your unsecured debt can result in:
- Collection calls.
- Legal action.
- The lender garnishing wages.
- A drop in your credit rating.
Fortunately, debt relief options are available to help you if you’re finding it too difficult to make payments.
Debt relief options
Licensed Insolvency Trustees are debt experts who will provide you with the best debt relief solutions. They are licensed and regulated by the Office of the Superintendent of Bankruptcy.
The three primary services that LITs provide are credit counselling, Consumer Proposals, and Bankruptcy assistance for individuals and businesses. They will work with you to understand your financial situation and find the best solution for you.
Credit counselling
LITs provide credit counselling to help people understand and manage their debt. Credit counselling might help you improve your financial situation and stay on track. However, if your debt problems are severe, another option is a Consumer Proposal.
Consumer Proposal
A Consumer Proposal is an agreement between you and your unsecured creditors. It’s a form of debt negotiation that gives creditors a formal offer to repay what you owe. You require the services of a LIT to file a consumer proposal who will do it on your behalf. You agree to repay part of your debt, and, in exchange, your creditors will write off the balance. Some benefits of a Consumer Proposal are:
- It can reduce your debt by up to 80%.
- It stops all interest and fees on your debt.
- A Consumer Proposal stops all collection calls.
- You make one monthly payment to your LIT, who distributes it to your creditors.
- Your payment includes your fees.
- You keep your assets.
Once it’s filed, your creditors have up to 45 days to accept or reject it. If they accept it, the proposal legally binds your creditors.
Consumer Proposals include many types of unsecured debt, such as credit cards, lines of credit, Canada Revenue Agency tax debt, payday loans, overdraft protection, personal loans, and money owed to utilities or your cell phone provider.
Debts you can’t include in a Consumer Proposal are support payments, alimony, court fines, or student loans if you have been a student within the last seven years. Also, secured debt such as mortgages or car loans.
This debt relief option allows you up to five years to repay the included debts.
When to stop paying creditors
Once you file, you can stop paying creditors. However, you shouldn’t stop payments beforehand if you can avoid it. If you stop paying your debts too far in advance of filing a Consumer Proposal, you could have your wages garnished or experience legal action.
You should continue to pay your secured debt, like your mortgage and car loan. This way, you’ll keep your home and your car. Keeping your utility bills and other essential expenses up to date is necessary so the companies don’t cut off your services.
Some financial obligations are not part of a Consumer Proposal. You must continue to pay them. These include child support, alimony, and student loans if you haven’t been out of school for more than seven years.
How to file a Consumer Proposal
Filing a Consumer Proposal is much easier than many borrowers believe. The first step is to book a free consultation with a LIT. Your LIT will need to know all your assets, liabilities, and income. Once they know this, they’ll create an offer for your creditors who have 45 days to accept or reject it.
If it’s accepted, you’ll make a monthly payment to your LIT, who will distribute the money to your creditors. Your LIT will guide you through the entire process, making it as straightforward as possible.
You’ll have up to five years to pay off your Proposal. There are no penalties for repaying it sooner. You can start rebuilding your credit almost immediately.
If your creditors reject the Proposal, your LIT can submit another one with a higher payment. If it’s also rejected, you may have to consider other debt relief solutions, such as filing for Bankruptcy.
Where to Get Debt Help
Several options are available to help you get out of debt. Licensed Insolvency Trustees are debt experts and will work with you to find the best solution for your situation. While working with your LIT, it’s important to continue paying your secured debts, such as your mortgage and car loan, and keep your essential bills up to date.
Allan Marshall and Associates have been helping people get out from under a mountain of debt for over 40 years. We’ll work with you to put your debt behind you so you can rebuild your financial future. Contact us online or at 1-888-371-8900 for a free consultation. Begin your debt-free journey today!
