Money is one of the most stressful factors in our lives and when we don’t know how to handle it well, we reduce our chances of achieving financial freedom. If you’re in the difficult position of confronting amounts of debt that you owe but don’t know how you can repay, know that you aren’t alone. Living under financial strain and serious debt has become the norm for many Canadians.
However, there are people out there who have managed to climb out of all sorts of difficult debt situations and regain control over their finances. So, you may be wondering, what’s their secret?
There can be many factors that contribute to a debt situation that’s simply grown out of control, but one of the most likely reasons that an individual or family can’t seem to get out of debt can be attributed to habits of overspending. Without a budget, without a commitment to smart spending, and without some key pieces of financial education, even a healthy income won’t seem like enough to turn the tables on debt. This is a financially delicate and stressful way to live, but you don’t have to live this way forever.
This article will outline the ways you can recognize financial danger signs, explain how debt relief can reduce the amount of debt you owe, and offer tips for finding a Licensed Insolvency Trustee that you’ll work well with. We’ll also outline some strategies for how to live debt-free and answer the question: what does it take to live debt free when you owe a lot of money?
You’ve already taken an important step to addressing your debt by acknowledging that you don’t have complete control over the situation. Know that there are professionals out there known as Licensed Insolvency Trustees (formerly known as bankruptcy trustees) who are patient, empathetic, and willing to help you navigate the formal processes of debt relief.
When debt causes stress as a result of collection agencies calling or garnishments to your wages, it might seem like bankruptcy is your only option. It may very well be that filing for bankruptcy is the best course of action for your situation, but there might be an alternative in the form of a consumer proposal.
In order to reach your goal of a debt-free life, you need to accept the scope of your problem and allow a licensed credit professional to assess your financial circumstances and show you your options for moving forward. Ready to learn more? Let’s begin.
Know How to Recognize Financial Danger Signs
Living with debt is a very natural thing for many Canadians, but you should be able to spot the signs of an unhealthy relationship with debt. Maybe you don’t know the grand total of how much you owe, maybe you can only afford the minimum payments to your creditors, maybe collection agencies are constantly calling you, and perhaps creditors have taken serious steps to reclaim unsecured debt from you by garnishing your wages.
If any of this sounds familiar, then you could be living in a volatile financial situation that needs to be addressed. In order to nip potentially disastrous financial situations in the bud, you need to know what signs to look out for. Here are some of the major red flags that you shouldn’t ignore when dealing with debt and personal finance.
You can’t pay your bills
Are you leaving bills unpaid for long periods of time or making just the minimum payments while accumulating too much interest? Being unable to fulfil your fiscal obligations is a major red flag that you’re in hot water with your finances.
You’re borrowing money
You may have turned to family and friends to borrow money or maybe you’re growing accustomed to taking out payday loans. Either way, regularly relying on borrowed money or short-term loans means that you’re living beyond your means. This type of living is financially unstable and unsustainable but can be addressed with the help of a certified credit professional.
Your wages are being garnished
Creditors who are owed an unsecured debt and are not receiving what’s owed to them are entitled to garnishing the wages of their debtors if they can get a warrant to do so. Wage garnishment can have a seriously negative impact on your income levels and even your mental health.
You’re making minor purchases on credit
Sometimes it’s wise to use your credit card for everyday expenses like groceries and gas if it means you’re collecting travel rewards or cash back, but you might be setting yourself up for failure by using your credit card for every minor expense,
You’re paying off one credit card with another
Here’s another credit card-related warning sign that you’ve lost control of your finances. Using one credit card to pay down another is a clear indicator that you can’t keep up with what you owe. It’s also a sure-fire way to accumulate more interest, leaving you worse off than you were with an unpaid bill.
Your utilities have been cut off
When utility companies aren’t receiving payment for their services, they’ll resort to ceasing service until they’re paid what they’re owed. Anything from your cell phone service, internet, hydro, electricity, or cable might be cut off in this situation, and in most cases, you’ll be required to pay an added reactivation fee that compounds the problem.
Reduce the Amount of Debt You Owe with a Consumer Proposal
True debt relief is more than coming up with a budget and setting strict spending guidelines. Bankruptcy trustees will offer credit counselling and financial advice, but their real purpose is to present you with your options for lowering the amount of debt you owe to something that is manageable. You might think that the only option available to you is to file for bankruptcy, but your trustee can help you see an alternative way to address and even reduce how much you owe.
Consumer proposals and bankruptcy are forms of debt relief that are meant to help Canadians when debt counselling isn’t enough. Consumer proposals are excellent choices for those who have a steady income and can commit to regular credit payments but they simply cannot repay their creditors in full. In many cases, it’s possible to negotiate with your creditors through a bankruptcy trustee.
If you file a consumer proposal, you’re essentially agreeing to pay back a portion of what you owe that is feasible for you. In cases where the creditors have been trying to collect unsecured debt unsuccessfully, a portion of the total sum is better than nothing and a deal can be made.
Working with a Licensed Insolvency Trustee
Acknowledging that you need outside help to recover from a difficult debt situation is a brave and healthy thing to do. Your financial wellbeing is important and you deserve to work with a professional who offers good advice and who is empathetic, patient, and knowledgeable.
While looking for the best professional debt management services to help you regain financial control over your life, know how to spot the signs of a great Licensed Insolvency Trustee. These professionals formerly went by the title “bankruptcy trustee” and they work as the crucial link between yourself and the Court in administering and negotiating your debt relief.
Want to ensure that you’re working with a great trustee? Here are some tips for spotting and teaming up with an excellent credit professional.
Ask around for recommendations
It’s understandable that you might not want to shout from the mountaintops that you’re filing for bankruptcy, but the procedure is more common than you think. You might have someone in your social circle who has gone through something similar and can recommend a qualified professional. And on top of getting recommendations, you can also ask any friends, relatives, or coworkers about their experience going through the debt relief process.
Do your research
By no means do you have to go into your first meeting with a trustee having read the entirety of the Bankruptcy and Insolvency Act, your trustee is the expert and you can rely on them to answer your questions.
Still, there are plenty of easy-to-understand resources on bankruptcies and consumer proposals that you can use to educate yourself so you’re not completely in the dark before you discuss your options. When you take the time to educate yourself, you’ll find it easier to tell the difference between a trustee that you want to work with and someone who is distant or disinterested.
Trust your gut
If something doesn’t make sense or you aren’t receiving clear answers to your questions, then you might not have found the right trustee for you. It’s important to have a professional relationship in which you have plenty of trust with the person who is handling a very important financial decision in your life.
You will be in communication with your trustee for at least nine months and potentially up to five years depending on what avenue of debt relief you pursue. You’ll be seeing a lot of each other and will need to communicate well during that time, so find someone that you can see yourself working with over a period of time. IF you’re not sure that you’re getting the best advice, then don’t hesitate to get a second opinion.
Questions to Ask Bankruptcy Trustees
You probably have a lot of questions about what to expect when filing for bankruptcy or a consumer proposal in Ontario. As a way to collect your thoughts and make sure no question is forgotten, set aside a few moments before your first meeting with your trustee to write down all the questions you have about your finances.
Probably one of the biggest questions on your mind, as you go into the debt relief process, is: what do I have to do? Your trustee can explain what’s expected of you and how you are expected to fulfil your duties either through bankruptcy or a consumer proposal.
To help you prepare for a consultation with a bankruptcy trustee, here are some other popular questions that can help you develop a full picture of how your debt recovery plan will affect your life.
- What assets will I have to give up if I file for bankruptcy?
- What can I keep through bankruptcy?
- I have student loans — how do they factor into everything?
- Does my debt relief process affect my spouse’s finances?
- What are the costs associated with bankruptcy? With a consumer proposal?
Asking good questions will put your mind at rest during what can be an otherwise stressful period of time. You may want to carry a notebook in the early stages of developing your debt recovery plan and jot down questions or concerns as they arise.
Strategies for Regaining Financial Control
You’ve met the perfect bankruptcy trustee, you’ve filed a consumer proposal and successfully negotiated to reduce your overall debt, and you’re working to fulfil the obligations of the agreement in as short a time as possible. What else can you do to pick yourself up and empower yourself financially?
If you haven’t set up an RRSP, you should do that as soon as you can. It’s one of the best investments you can make and an excellent way to grow your savings. You can also use financial apps and digital banking to automate your savings contributions so you can save money without even thinking about it. Many people who have come out from the shadow of debt swear by the “cash diet,” a way of budgeting where you only use cash to pay for daily expenses. It’s one of the best ways to actually conceptualize how much you spend and it keeps you from overspending since once you’re out of cash, you’re out!
These days people carry their debt almost like badges of honour. For some, an expensive mortgage or pricy car payments are just a way of life. Debt-free living is completely possible, and it’s well worth the effort. Imagine having complete control over how much you save, having the freedom to make financial decisions that you otherwise couldn’t because you owed your creditors the bulk of your paycheques. With debt relief, you can climb out from under debt and enjoy a life where you can achieve your financial goals.