Consumer debt can loom over you and cause anxiety and depression when trying to pay it back. The emotional impact of trying to keep up with monthly payments can seem like a never-ending dark hole, especially if debt collectors are calling about missed payments.
Managing your debt responsibly is critical to avoiding being consumed by the stresses of heavy debt loads, but that is easier said than done. Missing payments result in more interest, fees, and charges to pay, negatively impacting your credit score.
Getting your debt forgiven in Canada can be done with the help of credit professionals, and the process can vary depending on which province or territory you live in. Debt forgiveness programs assist those who cannot manage their debt burden.
While there is no easy way to clear debt, patience, dedication, and some help can get you there.
How Can I Get Debt Forgiveness in Canada?
Tackling your debt can seem daunting, but there are a few steps you can take to get started.
Make a Budget Plan
Make a clear budget plan that includes debt repayment. Using a budget tracker app or a spreadsheet to track spending details can keep you accountable for managing every dollar and see where you can make adjustments.
Debt Consolidation
Consider consolidating debt to lower your monthly payments. Being approved for debt consolidation can make managing your debt more straightforward, but you have to stay on top of repayments, otherwise you’ll end up owing more, much more.
Find Out Your Options
Call your creditors to discuss options that can benefit you. Lowering your interest rate on your credit card debt can reduce monthly minimum payments, but only if you qualify for approval.
Reduced monthly minimum payments give you a better chance of paying your debt off in full. It may still take years to pay off the debt, but at least the minimum payments will be easier to manage.
If you are still struggling to pay off your debt, even after implementing these steps, it may be time for more serious assistance.
What Help Can I Get to Reduce My Debt?
Seeking financial aid from a debt management advisor can provide you with some debt relief. These professionals help you understand how to manage your money better, teach you best practices for budgeting, and help you find resources to take control of your debt.
Debt Management Programs
A debt management program can help if you are unsure how to reduce your debt. A debt manager will reach out to your creditors to negotiate a reduced interest rate and total debt cost. They can also consolidate your debt to make it easier to pay off.
While a debt management program can reduce monthly payments, it is important to be aware that, in some cases where you have a high debt to income ratio, it may negatively impact your credit score.
Debt Settlement
Opting for a debt settlement allows a debt professional, such as a licenced insolvency trustee, to work with your creditors to find the best solution for you to pay off your debt. Usually, your debt professional will negotiate a lump sum payment, and the rest of the debt will be forgiven. This arrangement will reduce the total amount you pay back.
While this may seem a wise choice, it is not viable if you can’t access enough money to pay off the negotiated sum at once. There is also the debt settlement cost to pay, which is often directly taken from what you owe or the amount that was forgiven. Another downside to being approved for a debt settlement is that it will leave a negative score on your credit report.
Consumer Proposal
A consumer proposal can help borrowers get control over their debt. Filing a consumer proposal will allow a licenced insolvency trustee to advocate and fight lenders and legal teams on your behalf to reduce your debt.
Once these battles are won, you will be safe from further legal proceedings, interest on the debt will freeze, and you will be free of collection agencies constantly contacting you. While this debt will no longer impact your daily life, it will leave your credit score with a substantial negative dent.
Declaring Bankruptcy
As a final option, you can choose to file for bankruptcy. While there are many downsides to declaring bankruptcy, most notably the severe impact it will have on your credit score, this choice can have upsides that can give you the most debt relief. Even though you will lose certain assets by declaring bankruptcy, this is where debt forgiveness rules supreme and gives you a fresh start.
Why Are Credit Scores So Important?
Your credit score will determine your eligibility for loans, mortgages, insurance, apartment rentals, and even cell phone plans. A mediocre credit score shows you may not have the best financial history, making you a risky candidate for lenders and landlords.
While a low credit score is less than ideal, it is not a permanent situation. Opting for debt forgiveness in Canada will lower your credit score, and it will take time and effort to get it to a good place, but it may still be the best solution for you.
Which Debts Cannot Be Forgiven?
Once you have chosen how you will best get your debts forgiven in Canada, the next step is to understand exactly which debts will be forgiven. For the most part, the following debts can be forgiven:
- Overdue bills
- Unsecured loans and lines of credit
- Credit card debt
- Income tax debt (CRA)
- Payday loans
Knowing your program’s debt forgiveness rules and coverage can prevent unwanted surprises. Most debt forgiveness programs do not cover:
Secured loans: Since these lenders offer loans against your assets, you may have to sell your property or car to repay the loan. Otherwise, your assets could be repossessed or foreclosed upon.
Student loans: Most student loans are not covered by debt forgiveness plans, especially if repayment started within the last seven years. Suppose it has been over five years since you have been a student. In that case, you may qualify for the hardship provision if it is legally determined that you have acted in good faith to repay the loan and if financial difficulty will continue to impact ongoing repayments.
Child support and alimony payments: No matter your money troubles, any outstanding child support and/or alimony payments will still need to be covered.
Time to Get Started
Now that you have the answers to the questions “what is debt forgiveness?” and “what are my options for debt forgiveness in Canada?”, you can make an educated choice about how to get control over your debt. As soon as your debt has been forgiven, it is time to get serious about rebuilding your credit and creating a budget that keeps you from falling back into debt. Carefully considering how and where you are spending your money, what your financial goals are and what steps are needed to get there can keep you on track to accomplishing them. Achieving small goals can help you develop a better relationship with money.
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