Debt Consolidation Loans & Other Alternatives
Credit card debts charge very high rates of interest - in some cases up to 30% per year. Therefore, it makes good financial sense to eliminate credit card debt and replace it with lower interest loan.
The ideal solution would be to obtain a low interest bank loan or line of credit from a bank and use the funds to pay off credit card debt. This is called a "debt consolidation loan". However, if one has insufficient income, too high a debt level, or a history of missed debt payments, then getting such a loan may be very difficult, if not impossible.
If getting a debt consolidation loan from a bank isn't possible but you own a home, another alternative is to borrow from a private lender through the assistance of a mortgage broker. The home would be used as security for the debt consolidation loan, which is effectively a mortgage against your house. Such lenders generally charge higher rates of interest - on average of 15% if you already have a first mortgage on your home.
Of course, if you don't have sufficient equity in your home or don't even own one, then getting a debt consolidation loan through this method won't work. In that case, you'll likely need the assistance of a debt professional, as discussed below.
Reputable non-profit credit counselling agencies offer a service called a Debt Management Plan ("DMP"). They will negotiate with your creditors to: (1) reduce the rate of interest or even stop further accrual of additional interest; and (2) allow you to repay your debt in full over up to 60 months.
You make one monthly payment to the credit counselling agency which disburses the funds to your creditors. You are effectively consolidating your debts through the agency and are expected to pay back 100% of the debts.
The downside is that your credit will be affected: you will have an R9 on your credit file (i.e., bad debt or bankruptcy) from the time the DMP is submitted to your creditors until it is paid in full. In effect, you are sacrificing your credit rating for the privilege of repaying all your debts over a longer period of time.
If you cannot even repay your debts through a Debt Management Program, then you may want to consider settling with your creditors through a Consumer Proposal.
A consumer proposal is a legally binding negotiated settlement done under the Canadian Bankruptcy Act. You would need the assistance of a federally-licensed trustee in bankruptcy to do this, as only a trustee has the legal authority to file your proposal and deal with your creditors.
You may be qualified to file a consumer proposal if you meet the following criteria:
- You cannot pay your debts as they become due in the normal course
- Your total debts, not including the mortgage on your principal residence, do not exceed $250,000.
Creditors would be willing to negotiate a settlement since your only alternative if they don't accept it would be to file for personal bankruptcy. Of course, your creditors would get far less money than they would if they accepted your consumer proposal.
Want to work with us? Our promise to you...
If you feel that a consumer proposal might be an ideal option for you, feel free to contact our bankruptcy trustee, Victor Fong. Victor can meet with you at our head office or at any one of our various locations throughout the Greater Toronto Area:
When you work with us, we promise that,
- You will be in constant contact with a real, licensed bankruptcy trustee.
- Your calls will always be returned.
- Your emails will never be ignored.
- We shall work with you to craft an affordable payment plan that makes sense for your budget.
Victor Fong, Trustee in Bankruptcy
Contact Info for our Toronto Head Office
Fong and Partners Inc
Suite 1007-2 Carlton Street
Toronto, Ontario M5B 1J3