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| To choose the right debt solution, compare your income, total debt, interest rates, assets, credit score and creditor pressure. If you can repay the full amount, consolidation or credit counselling may help. If repayment is not realistic, a consumer proposal or bankruptcy may need to be reviewed with a Licensed Insolvency Trustee. |
Start with affordability
The right debt solution starts with one question: what can you actually afford each month without using more credit?
Many people choose solutions based on what sounds least scary. Some avoid bankruptcy at all costs. Others take consolidation loans because one payment sounds easier. But the right solution has to work in real life, not only on paper. Explore the full range of debt relief options.
List your debts
Write down every debt, including credit cards, lines of credit, payday loans, personal loans, tax debt, student loans and collection accounts. Include the balance, interest rate, minimum payment and whether payments are current.
This helps you see whether the problem is interest, cash flow, total debt size or creditor pressure.
Review your income and expenses
Next, list income and necessary living costs. Include rent or mortgage, utilities, food, transportation, insurance, medical costs and family expenses.
The amount left after essentials is what you can use for debt repayment. If your current payments are higher than that amount, the solution needs to reduce pressure.
If you can repay in full
If you can repay the full debt with some structure, consider a budget plan, debt consolidation or a debt management plan.
Debt consolidation may be helpful if the rate is lower and the monthly payment fits your budget. See the Financial Consumer Agency of Canada page on debt consolidation. A debt management plan may be helpful if you can repay the full amount but need creditor cooperation and possible interest relief. Learn more about getting help from a credit counsellor from the Financial Consumer Agency of Canada.
If you cannot repay in full
If the full debt cannot realistically be repaid, it may be time to review a consumer proposal or bankruptcy.
A consumer proposal can reduce unsecured debt and create one monthly payment. Bankruptcy may provide a fresh start when a proposal is not affordable. Official information is available from the Office of the Superintendent of Bankruptcy on consumer proposals.
If creditors are taking action
If creditors are suing, garnishing wages or calling constantly, legal protection may matter more than convenience. A consumer proposal or bankruptcy can stop most unsecured creditor collection action once filed. See the Office of the Superintendent of Bankruptcy page on creditors contacting you after filing a bankruptcy or proposal.
Informal solutions may not provide the same protection.
If you have assets
If you own a home, vehicle, investments or other assets, speak with a trustee before choosing. Assets can affect both bankruptcy and proposal calculations.
A consumer proposal may be a way to deal with debt while keeping assets, but it needs to be structured properly.
If your credit is already damaged
If your credit is poor, a consolidation loan may come with a high interest rate or may not be available. In that case, borrowing more may not be the safest option. Information about how long details stay on your credit report is available from the Financial Consumer Agency of Canada.
A trustee can help compare options that do not depend on a strong credit score. Learn more about what a Licensed Insolvency Trustee is from the Office of the Superintendent of Bankruptcy.
The main takeaway
The right debt solution is the one that is affordable, realistic and matched to your goals. Before deciding, compare all options with someone who can explain both informal and legal debt relief.
Frequently asked questions
What is the first step in choosing a debt solution?
List all debts, income, expenses and assets so you can see what is realistic.
Should I choose the lowest monthly payment?
Not always. The lowest payment may cost more over time or may not solve the debt problem.
Who can help me compare options?
A Licensed Insolvency Trustee can explain consumer proposals, bankruptcy and other options.
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.
