In the red and feeling overwhelmed? You are not alone. For many millennial Canadians, debt is just one of the many facets of their everyday life. From student loans to credit card bills and mortgage payments, millennials face greater financial strain than previous generations. In fact, millennials were reported to be 1.4 times more likely to file for insolvency than Generation X (aged 42 to 56), and 1.7 times more likely than baby boomers (aged 57 to 76).
Just like budgeting to cover your rent and food expenses, young Canadians are used to incorporating debt into their financial budgets and paying them off gradually. However, while the debt you are holding might not be a concern at first glance, if not managed effectively, it can quickly snowball out of control and become a significant source of financial stress.
Do you have a debt problem? Here are a few warning signs to watch out for:
- Making minimum payments on credit cards
- Borrowing money from payday lenders
- Debt collectors are calling on you
- Missing payments to any household or personal bill
- Using one loan to pay off another
- Utilizing overdraft protection as a source of regular cash flow
- Nearing the limit of your credit card balances
- Using cash advances on credit cards
- You lack clarity on your total debt load
- Considering consolidating debts
If you are demonstrating any or all of the above warning signs – you have a debt problem. But if you find yourself struggling with debt, don’t despair! There are several options you can employ to manage your debt.
Here are five ways to manage your debt:
1. Negotiate with your creditors
The first step in dealing with debt — and the best thing to do before seeking credit counselling services — is to meet with your financial institution and/or creditors directly. Since they want to be repaid, they will make time to meet with you. And although they are not obligated to renegotiate their terms, your creditors may be able to offer you a lower interest rate product or offer to consolidate your debts into one loan that will be easier and less expensive to manage.
2. Ask your financial institution about a consolidation loan
If you are unable to renegotiate the terms of your debt, you might consider asking your financial institution for a consolidation loan. A consolidation loan gathers all of your debts together into one, manageable debt with a single interest rate and a single payment schedule. Simply put, the financial institution pays off your debts, and in return, you make a single monthly payment directly to them.
However, getting a consolidation loan isn’t always the best course of action. For a consolidation loan to save you money, it must have a lower interest rate than your outstanding debts. Getting a consolidated loan also means that you must not acquire new credit or loans for its duration. Practically speaking, it may be a good idea to destroy all but one credit card to help you stick to the plan.
3. Get advice on a debt management strategy from a credit counsellor
Credit counselling can be a helpful tool for Canadians with debt issues as they learn approaches to reduce and eliminate their debts using education, budgeting tools, and much more. By participating in a free and confidential consultation with an accredited credit counsellor, you’ll attain a holistic picture of your debt problem and explore the different debt management options at your disposal.
From debt consolidation and repayment to settlement programs, your credit counsellor can help you determine the best option to manage your debt and get your finances back on track. Are you stressed about dealing with your creditors? Not to worry – as part of their services, credit counsellors will work on your behalf to deal with your creditors so you can keep the focus on paying off your debts.
But a word of caution, when researching credit counselling services, be wary of companies that use high-pressure sales tactics, request upfront fees or guarantee that they can negotiate a deal with your creditors so that you will only have to pay part of your debt. As a safeguard, it is best to ensure that the agency is in good standing with a provincial or national association such as Credit Counselling Canada or the Canadian Association of Credit Counselling Services. These associations require their members to maintain specific standards of practice.
4. File a consumer proposal
A consumer proposal is a formal, legally binding process where you offer to pay creditors a percentage of what you owe to them, and they agree to either forgive the balance or provide you with additional time to pay off your outstanding debts. If your debt has got you feeling down, filing a consumer proposal with a licensed insolvency trustee could be the solution you’ve been looking for. It can help offer you peace of mind, reduce your debt by up to 70%, help you avoid interest charges, evade bankruptcy, and retain possession of your assets.
However, while consumer proposals are a better financial alternative to filing for bankruptcy, they still have long-lasting negative repercussions on your credit rating and will keep you in debt for a longer period than other debt relief methods. So, before pulling the trigger on a consumer proposal to tackle your debt problem, assess the risks to ensure it’s the best option for your financial needs.
5. Declaring bankruptcy
Declaring bankruptcy is a different financial beast. Bankruptcy refers to the legal status of a person or other entity that cannot repay the debts it owes to its creditors. While filing for bankruptcy might not be the most desirable option, it can help protect Canadians in financial debt who cannot meet their financial obligations. By employing this debt management option, you can help prevent creditors from taking legal action against you as you work to regain control of your finances. However, declaring bankruptcy is a complex process and should not be a decision that is taken lightly. Before you declare bankruptcy, consult with a licensed insolvency trustee to get a holistic picture of your financial situation and determine if this is the truly right option for you. Once filed, you agree to give your insolvency trustee complete control of your finances, agree to provide a report of your household income and living expenses to your trustee, and will have the filing noted on your credit report for six years, which will hamper your ease in getting approved for a financial loan in the future. Simply put, bankruptcy doesn’t miraculously erase your debt problems. It should be seen as your last resort to address your financial problems, not your only one.
Everyone’s financial situation varies, so before making your decision, be sure to thoroughly explore the options available to you and speak with the experts themselves to find the debt solution that is right for you.
Take control of your debt problem with the help of a credit union…become a credit union member
Tackling your debt when it’s spiraling out of control can be a daunting task, but by putting in the time and effort required, it’s possible. Credit unions are great financial partners to help you manage your debt and protect your financial well-being. Not yet a credit union member? To find your nearest credit union, click here.