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When to Seek Debt Relief in Canada & Available Options

Managing your finances these days can be tough, especially when your debt keeps rising. Seeking help before it becomes unmanageable, is important. There are warning signs that you should be aware of that will let you know it’s time to get help. It’s never too early to ask for help with your debt.

When Should You Seek Debt Relief?

Here are a few of the warning signs:

  • Persistent High-Interest Debt: A clear indication that it’s time to seek debt relief is when high-interest debts, such as credit card debt, become persistent and unmanageable. These types of debts often come with exorbitant interest rates that can quickly snowball, making it challenging for you to make significant progress in paying down the principal amount. If you are spending a substantial portion of your income on servicing interest rather than reducing the debt itself, it’s time to explore relief options.
  • Struggling with Monthly Payments: If you find yourself struggling to make minimum payments on your outstanding debts each month, it’s a clear signal that your financial situation is becoming precarious. Whether it’s credit card, loans, or other financial obligations, consistently missing or barely meeting payment deadlines indicates a potential need for debt relief. 

Missing payments or barely meeting the minimum requirements can result in late fees, increased interest rates, and a negative impact on your credit score. Seeking debt relief can provide a structured approach to managing your payments and preventing further financial deterioration.

  • Dwindling Savings and Emergency Funds: Financial experts often emphasize the importance of having savings and emergency funds to cover unexpected expenses. If your emergency fund is dwindling, or worse, non-existent, it becomes challenging to handle unforeseen financial setbacks without resorting to credit. A lack of savings can contribute to a cycle of debt, making it vital to assess your financial preparedness and seek relief if needed.
  • Job Loss or Reduced Income: Life is unpredictable, and employment circumstances can change in the blink of an eye. Whether due to job loss, a reduction in work hours, or other factors affecting income, a sudden decrease in earning capacity can strain your ability to meet financial obligations. Seeking debt relief can provide a temporary solution to navigate through the challenging period until you regain stable employment or find alternative income sources.
  • Creditor Harassment and Legal Actions: If creditors are relentlessly calling, sending letters, or even threatening legal actions, it’s a clear indication that your financial situation is in dire straits. Ignoring these warning signs can lead to serious consequences, including damaged credit, wage garnishment, or legal proceedings. Seeking professional assistance can help you understand your rights, negotiate with creditors, and establish a realistic repayment plan to prevent further escalation of the situation.
  • Multiple Loan Accounts: Having multiple loan accounts, such as personal loans, car loans, or lines of credit, can be challenging to manage, especially if each comes with its own interest rates and payment schedules. Consolidating these debts through debt relief options like debt consolidation or debt management plans can make your money situation simpler and help you handle your payments more easily.
  • Financial Stress Impacting Mental Health: Financial stress can take a toll on your mental well-being. If you find yourself constantly worried about money, losing sleep, or experiencing anxiety and depression related to your financial situation, it’s essential to address both the financial and mental health aspects. Seeking debt relief not only offers a pathway to alleviate immediate financial difficulty but also provides an opportunity to rebuild a healthier relationship with money and reduce stress.
  • Threats of Foreclosure or Repossession: For Canadians facing the threat of foreclosure on their homes or the repossession of assets, seeking debt relief is of utmost importance. These situations can have long-term consequences on your financial stability and creditworthiness. Debt relief options, such as negotiating with lenders or exploring refinancing possibilities, can help you retain your home or vehicle while managing your financial obligations.

How much debt is too much debt and when is it time to reach out for help? Find out in this informative podcast.

Debt Relief Options in Canada 

There are several options for debt relief in Canada. Here are the most common:

1. Debt Consolidation Loans

Debt consolidation involves combining multiple debts into a single loan with a lower interest rate. This can simplify monthly payments and reduce the overall cost of servicing debt.

Canadians with multiple high-interest debts, such as credit cards or personal loans, may be eligible for debt consolidation loans. Lenders typically assess applicants based on creditworthiness and debt levels.

2. Debt Management Plans (DMPs)

Debt management plans involve working with credit counseling agencies to negotiate lower interest rates and more favorable terms with creditors. Participants make a single monthly payment to the agency, which then distributes funds to creditors.

If you have unsecured debts, such as credit cards, you may qualify for a debt management plan. It’s essential to consult with a credit counselor to assess eligibility and create a customized plan.

3. Consumer Proposals

A Consumer Proposal is a legal process facilitated by Licensed Insolvency Trustees. It allows you to propose a reduced repayment plan to creditors, often resulting in a significant reduction of total debt.

Canadians with unsecured debts not exceeding $250,000 (excluding a mortgage on the primary residence) may be eligible for a Consumer Proposal. It provides an alternative to Bankruptcy for those facing financial challenges.

4. Bankruptcy

Bankruptcy is a legal process that involves the discharge of most debts, providing you with a fresh start. While considered a last resort, it offers relief from severe financial distress. If you’re thinking about filing for Bankruptcy to manage your debt, you need to consult a Licensed Insolvency Trustee (LIT), a professional licensed by the federal government to handle Bankruptcies.

Bankruptcy is suitable for those facing significant financial challenges with no viable alternatives. Eligibility is assessed based on your financial situation and debts.

5. Government Student Loan Forgiveness Programs

Various government programs offer student loan forgiveness under specific conditions. These conditions may include working in designated professions or serving in underserved communities.

Eligibility varies based on the specific forgiveness program and may require meeting certain criteria, such as completing a designated period of qualifying service.

6. Credit Counseling 

Credit counseling encompasses budgeting, responsible credit/debit usage, and debt repayment. Licensed Insolvency Trustees assess finances and strategize goals like expense reduction, targeted debt payment, and evaluation of non-essential asset liquidation. Consulting with a Licensed Insolvency Trustee ensures you of regulated fees, comprehensive debt relief discussions, and legal protection from creditors. 

Credit counseling is offered to Canadians seeking guidance on managing their debts. It’s a valuable resource for those looking to improve financial literacy and make informed decisions about debt and money management.

Allan Marshall & Associates Licensed Insolvency Trustee

Allan Marshall and Associates have been assisting individuals and families facing financial challenges since 1979. Our team of Licensed Insolvency Trustees operates under the regulation of the Canadian Federal Government, ensuring a thorough review of all available options to identify the optimal solution for managing your debt issues. Get in touch with us for a free consultation today – We Can Help™.

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Mark Marshall BBA, C.I.R.P, L.I.T

Mark has been working in the Insolvency field since graduating from the University of New Brunswick with a degree in Business Administration (BBA). In 2012 Mark received his Chartered Insolvency & Restructuring Professional (CIRP) designation and attained his license as a Licensed Insolvency Trustee (LIT) in 2013.