Featured answer
| You may be able to reduce debt payments starting this month if your current payments are unaffordable. Options may include changing your budget, consolidating debt, entering a debt management plan, filing a consumer proposal or, in some cases, filing bankruptcy. The right option depends on your income, expenses, assets, debts and the urgency of the situation. |
Start with your immediate cash flow
If your debt payments are coming due and you cannot keep up, the first step is to look at your cash flow. List your income and deduct all your essential living expenses, such as housing, food, utilities, transportation, insurance and child-related expenses.
This helps answer the most important question: how much money is left over each month. Whatever is left over each month is the amount that you can realistically afford to pay without using more credit or collapsing assets. If no money is left over after you pay essential living expenses, then your budget is short.
When small changes may be enough
If you are only slightly short in your budget, an adjustment may help. You may be able to cancel unused subscriptions, change payment dates, reduce discretionary spending or temporarily pause extra payments to focus on the highest-interest debt.
This works only if the debt is still manageable and the balance is going down as you make your payments each month—ideally on track to pay the full balances off within five years. If the balance keeps growing, small adjustments to the budget may not be enough.
Debt consolidation may lower the payment
A debt consolidation loan may lower payments by combining multiple debts into one loan and one simple payment that builds credit over time. This can help if you qualify for a consolidation loan that is affordable at a lower interest rate or a longer repayment period. For more information, see the Financial Consumer Agency of Canada page on debt consolidation.
Keep in mind that consolidation just moves the debt from one place to another. The risk is that a lower payment may come with a longer repayment period or a high interest rate, which may not be affordable over the term and may put pressure on you to incur more debt when you cannot meet your living expenses. Consolidation should reduce pressure without creating more debt over time.
A debt management plan may create one payment
A debt management plan through a credit counselling agency may combine several unsecured debts into one monthly payment. In some cases, creditors may agree to reduce or stop interest. Usually, the full debt is repaid in a debt management plan. Learn more about getting help from a credit counsellor from the Financial Consumer Agency of Canada.
This can be helpful if your budget can handle full repayment without interest but needs a more organized structure to help you get through it.
A consumer proposal may reduce the monthly payment
A consumer proposal is designed to settle debts and can reduce debt payments significantly because it is based on what you can afford and what creditors may accept based on your income and assets. Instead of paying each unsecured creditor separately, you make one payment through a Licensed Insolvency Trustee. Official details are available from the Office of the Superintendent of Bankruptcy on consumer proposals.
Once filed, a consumer proposal provides legal protection from most unsecured collection actions and stops interest on included unsecured debts if the proposal is completed. A consumer proposal may help quickly if you are facing stressful collection calls, lawsuits or wage garnishment. See also the Office of the Superintendent of Bankruptcy information on creditors contacting you after filing a bankruptcy or proposal.
Bankruptcy may reduce payment pressure when no proposal is affordable
Bankruptcy may be considered when there is no realistic way to repay the debts or make proposal payments over a long term. The payment in bankruptcy depends on income, expenses, assets, debts, family size and other factors. It should be compared carefully with a consumer proposal and your other options during a discussion with a Licensed Insolvency Trustee.
Do not reduce payments without understanding the consequences
Skipping payments and ignoring the creditors may work for some people; however, it usually leads to stressful collection calls, late fees, credit damage, legal action or wage garnishment. Before stopping payments, it is wise to speak with a Licensed Insolvency Trustee who can explain your options and the advantages and disadvantages of each option. Explore the full range of debt relief options available.
The main takeaway
You may have several ways to reduce your debt payments, but the safest option depends on whether the issue is a short-term cash-flow issue or a long-term affordability issue. A Licensed Insolvency Trustee can review your situation and explain whether a consumer proposal, bankruptcy, consolidation or another option makes sense.
Frequently asked questions
Can I lower credit card payments myself?
Yes, you can contact creditors to try to settle the debts yourself, but they do not have to agree to reduce interest, balances or payments, and any such agreements should be well-documented. Legal options may offer stronger assurances and protection.
How fast can a consumer proposal help?
Once filed, a consumer proposal can stop most unsecured creditor collection action and interest on debts included in the proposal.
Should I get another loan to lower my payments?
Only if the interest rate and payment terms truly improve your situation, you can afford to repay the amount within five years, and you can avoid incurring new debt along the way.
Speak with a Licensed Insolvency Trustee
Speak with David Sklar & Associates for a confidential review of your debt, income, assets and monthly budget. A Licensed Insolvency Trustee can explain your options and help you choose a realistic next step. Book a free consultation today.
