Debt Relief in Canada: Types & How can one get out of debt?

In 2022, Equifax reported that the average Canadian household grappled with a 177.6% debt-to-income ratio, signifying a debt burden of $1.78 for every available dollar. In this scenario, understanding effective debt relief options becomes paramount. Canada offers formal solutions, including consumer proposals requiring a minimum of $1,000 in unsecured debts, allowing negotiation for discounted settlements or extended repayment periods.

Debt Relief in Canada

Informal methods like debt consolidation, involving a single loan to settle multiple debts, debt negotiation, a challenging yet worthwhile avenue, and credit repair, correcting credit report errors, offer Canadians diverse paths to regain financial stability. Choosing the right strategy depends on individual circumstances, emphasizing the importance of professional advice from credit counsellors or licensed insolvency trustees to navigate these options effectively.

You are not alone in dealing with debts. There are millions of Canadaians who suffer from the same condition. However, do not lose hope because there are ways to save yourself from this problem of debt. Let’s Jump to types of debt relief types and know all about them. Basically, there are two main types of debt relief in Canada: 

Formal debt relief: This is a legal process in which a licensed insolvency trustee. Consumer proposals and bankruptcy are examples of formal debt relief options.

Informal debt relief: It is non-legal, and one can do so individually or together with a credit counsellor or another financial advisor. Debt consolidation, debt negotiation and credit repair are a few examples of informal debt relief options.

Formal debt relief options

  • Consumer proposal: A consumer proposal is a legal contract between you and your creditors. This permits you to negotiate a discounted settlement of your debt, or else prolong your repayment period. To get started, you have to owe at least $1,000 of unsecured debts that cannot be repaid completely.
  • Bankruptcy: The only option left for people unable to pay their debts are bankruptcy. They can free you from the debts; however, these result in really nasty after effects in relation to your credit report and various other finance matters.

Informal debt relief options

  • Debt consolidation: Debt consolidation means one loan is used to settle all your outstanding debts. This may prove to be an excellent option especially where you could qualify for a low interest rate on the new loan. Nevertheless, caution has to be taken to avoid taking on more debts which one cannot afford after.
  • Debt negotiation: One of these ways is through debt negotiation. It is slightly difficult to exercise, but if you are finding it hard to make payments, it is definitely worth a try.
  • Credit repair: Credit repair encompasses the correction of any errors in a credit report, as well as moves in the direction of improving your credit score. This could facilitate access to loans and other credits in the future.

Debt Relief Plan that Suits you Best

Your desire for the exceptional debt alleviation alternative relies upon your specific situation. If you’re uncertain which choice is appropriate for you, consult a credit counsellor or a licensed insolvency trustee. This can aid you in comparing your problem and endorse at the right manner to proceed. 

Before selecting a credit counsellor or licensed insolvency trustee, make informed decisions. Choose the right people, the experienced and trustworthy ones. Also, you should talk to them by questioning about their financial background.

Debt Relief in Canada

Here are some tips for choosing a credit counsellor or licensed insolvency trustee: 

  • Get your referrals from your own family, friends and colleagues. 
  • Verify that you do not have a bank or credit score union on your location that can factor you to a dependable lender. 
  • Find out how different credit counsellors and licensed insolvency trustees are rated by searching online.
  • Consult with your provincial/territorial consumer protection agency on this matter.

Once you’ve selected a credit counsellor or Licensed Insolvency Trustee, they’ll assist you in devising the right debt relief plan for your specific circumstances. They can also assist you in negotiating with your creditors and establishing a budget.

How to Get Out of Debt?

Here are some suggestions for getting out of debt:

  • Create a budget: This helps you follow up your incomings and outgoings, which helps you know where your money goes.
  • Prioritise your debts: First, repay high interest debt.
  • Make more than the minimum payment on your debts: It will enable you to clear your debt more quickly and also reduce the cost of interests.
  • Avoid taking on new debt: This will only worsen your situation.
  • Get professional help if you need it: You can take advantage of the services offered by a credit counsellor or licensed insolvency trustee in preparing a debt relief plan and bargain for better conditions with your creditors.

It’s easy to say but difficult to get out of debt. Following these tips and selecting the appropriate debt relief solution for your situation will see you regain control of your financial life.

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