Updated October 17, 2019.
Debt Consolidation in Edmonton & Surrounding Areas
The average Canadian owes $8500 in consumer debt, excluding their mortgage. While this amount of debt can be manageable if you earn enough money, for those who struggle to make ends meet a mountain of debt can be hard to summit.
Many Albertans who struggle with debt haven’t been able to pay their bills on time for months or even years. As a result, many feel overwhelmed by their debt and worry that their poor credit could damage their financial future.
Some turn to payday loans, whose sky-high interest rates only add to the problem. Others wrongly believe that debt consolidation loans are the only answer to their financial woes.
Before you turn to payday loans or other loans, there are a few things you can try to get yourself out of debt, such as tracking your spending, delaying major purchases, trimming unnecessary expenses from your budget, and always making sure to pay more than just the minimum balance on your credit card.
But, if you feel like you are in over your head, help is available. There are a variety of programs and services in Alberta to help with debt relief, including debt consolidation.
What is Debt Consolidation?
Debt consolidation is, to put it simply, the process of combining two or more debts into one easily managed monthly payment.
Debt consolidation can involve taking out a large loan and using it to pay off your smaller loans. Though this strategy may save you money on interest overall, a debt consolidation loan is still a loan and will keep you in the cycle of debt if you aren’t able to pay it off. If you are in deep financial trouble, a loan may not work for you even if the interest rates are less than your present list of loans.
An alternative to a consolidation loan is a Consumer Proposal.
A debt consolidation process known as a consumer proposal is a formal arrangement that allows a Licensed Insolvency Trustee (LIT) to work to arrange for a settlement agreement with your creditors. To do this, a Licensed Insolvency Trustee will have the effect of combining your debts into a single monthly payment. Depending on your unique needs, your relationship with your creditors, and what factors are hampering your debt-repayment efforts, your LIT will likely be able to create a settlement arrangement that is more affordable for you.
Who is a Candidate for Debt Consolidation?
If you wish to take out a loan to pay off your debts, you will need to meet with your bank or lender to ensure you meet their qualifying criteria.
However, most people in financial difficulty do not qualify for consolidation loans. In many cases, a person needs an acceptable credit score and a steady income stream to qualify. Your monthly expenses will also be compared to see if they are at a reasonable level relative to your monthly income. It is important to note that a consolidated loan is still a loan. The interest may be lower, but you still have to pay your debts off in full, and you still need to be mindful of variable interest rates, which can hike up your payments if rates change. All future events, like job loss or illness, could also have an unexpected effect on your ability to pay off the loan.
Often debtors have tried a number of ways to handle their debt obligations, including additional loans and have fallen behind in payments. This increases an already problematic credit history.
You can talk to a Licensed Insolvency Trustee about other debt solutions for your situation. The Trustee will work with you to determine which strategy or strategies are available to you.
Options for Albertans with No or Poor Credit
Poor credit or no credit can affect your ability to qualify for a general debt consolidation loan, but this does not necessarily affect your ability to consolidate your debts through a Consumer Proposal. You can appoint a Trustee to facilitate this process.
Debt Consolidation Loan vs. Consumer Proposal
Debt consolidation refers to any strategy that may make your debts more manageable by consolidating them into a single monthly payment.
A consumer proposal is a type of debt consolidation strategy which does not involve obtaining a new loan. It is a formal process only administered by federally licensed trustees and is, once it is accepted by the majority of the unsecured creditors, a legally binding arrangement.
A consumer proposal is administered by a federally appointed Licensed Insolvency Trustee and involves having a Trustee consider your situation and recommend an appropriate proposal – that is, an offer to pay your creditors a portion of what you owe them, extend the time you have to pay your debts (up to five years total), or both, which they will then present to your creditors on your behalf.
Under a consumer proposal, you make monthly payments to the Trustee, who then, in turn, distributes that money to your creditors periodically. A consumer proposal can help you to reduce the amount you owe overall, avoid wage garnishments, and likely eliminate interest entirely on your remaining debts.
Advantages & Disadvantages of Choosing a Consumer Debt Proposal
Filing a consumer proposal might be your best option, if:
- Your debts are over $5,000 but not over $250,000 (not including your home mortgage)
- You have a regular source of income and are able to make pre-determined payments
- You’re unable to repay your existing debts as they come due
- You want to avoid bankruptcy and the rigours regarding income and asset rules
- You are unable to obtain a consolidation loan from a bank because your financial situation is problematic
- You are in danger of impending foreclosure or repossession because of all your other payments
- Your income would be subject to considerable surplus income payments in a bankruptcy
- You need to deal with your debt without adding another loan and interest to your issues
However, if you choose to file a consumer proposal:
- You will not be able to choose which debts are included
- You must still deal with secured debts, such as your home mortgage and car loan
- You cannot eliminate your child and spousal support obligations and arrears, student loan obligations (subject to the 7-year rule), government overpayments (e.g. unemployment insurance) or court-ordered fines and debts from fraudulent activities
- The court can nullify the consumer proposal if you default more than, or equal to, three payments (where payments are made monthly or more frequently) or (if less frequently) 3 months after being in default of any payment that is not remedied within the prescribed time limit.
Debtors worry that Consumer Proposals or Bankruptcy will affect their credit score. But the reality is that your struggles with debt repayment and missed payments may have already negatively affected your credit score. Talk to a Trustee because unresolved debt issues in the past may affect your ability to attain a mortgage, credit card, or car loan in the future. Further, you could end up subject to garnishees, liens, or foreclosure.
Not paying your bills on time has one of the biggest impacts on your credit score, regardless of how you choose to address your debt after the fact.
Debt Consolidation FAQ
How Does Debt Consolidation Work?
How debt consolidation works depends on whether you want to solve your debt issues on your own or borrow more money to deal with the present debt. Depending on your unique financial situation and your relationship with your creditors, this strategy could include extending your payment schedule (thereby allowing you to make smaller monthly payments) or obtaining a lower interest rate on the remaining portion of debts.
How Can I Tell if Debt Consolidation is a Good Idea For Me?
Whether or not debt consolidation is a good strategy for you depends entirely on your unique financial circumstances, personal situation and commitments.
To determine the best way for you to address your outstanding debts, talk to a Licensed Insolvency Trustee. Their consultations are usually free.
What Types of Debt Can I Consolidate Under a Consumer Proposal?
Which debts qualify for a consumer proposal depends on your unique circumstances and what your creditors agree to.
You can consolidate:
- Credit card debt
- Unsecured personal loan debt
- Non-government student loan
- Medical bills
- Residual repossession debt
You cannot consolidate:
- Auto loans
- Certain student loans
- RV loans
If you are looking to consolidate your debt without taking on more debt, please speak to a Licensed Insolvency Trustee.
What Should I Expect While Talking to a Trustee?
The first step is to arrange a meeting with a Licensed Insolvency Trustee. Licensed Insolvency Trustees are federally regulated professionals whose job it is to provide both advice and services to individuals and businesses experiencing debt problems. The job of your Trustee is to help you get a handle on your finances, make informed choices, and act as an intermediary between you and your creditors. All you need to do is table all your financial matters and discuss your situation openly with the view of arriving at a solution to your indebtedness.
When you meet with a Trustee, they will help you:
- Consider the quantum of your debt
- Help you determine what budgetary items are preventing you from paying off your debts as required.
- Suggest other alternatives such as paying off the smallest debts first
If you proceed with a consumer proposal, the Trustee will register your file with the OSB and send notice of the consumer proposal to your creditors.
If your creditors are willing to accept the strategy proposed to them by the Trustee, the Trustee, as agreed, will receive and distribute the funds along the way to your creditors.
If you are feeling overwhelmed by your debt, A. C. Waring & Associates Inc. is here to help. We have been Licensed Insolvency Trustees and Trustees in Bankruptcy for over 25 years. We pride ourselves on making it easy to get the advice and support you need. Simply call our office, book an appointment, or drop in for financial advice or a free consultation.
For more information, please contact us today.