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| If you cannot keep up with multiple debts, your options may include: budgeting; debt consolidation; a debt management plan through a credit counselling agency; a consumer proposal; or bankruptcy. The right choice depends on whether you can repay the full debt, whether you qualify for new credit, and whether you need legal protection from creditors. |
Multiple debts can become overwhelming quickly
It is common for debt problems to build gradually. One credit card becomes two, and then two credit cards become three. A line of credit helps for a while. A payday loan covers a shortfall. Then a tax balance, car repair or emergency expense pushes the budget over the edge.
At first, each payment may look manageable. The problem is the total pressure. Multiple payment dates, different interest rates and different creditors can make it hard to see what is really happening.
Step one is to list everything
Before choosing a debt solution, write down every debt. Include credit cards, lines of credit, personal loans, payday loans, tax debt, overdraft, collection accounts, student loans and any money owed to family or friends.
For each debt, list the balance, interest rate, minimum payment, whether it is secured or unsecured and whether payments are current. This gives you a clear picture of what you are dealing with.
Option one is a budget and repayment plan
If your debts are still manageable, a budget and repayment plan may be enough. This works best when your income is stable, your interest rates are not too high and you can pay more than the minimum.
The challenge is that a budget alone may not solve the problem if the payments already exceed what you can afford.
Option two is debt consolidation
Debt consolidation combines multiple debts into one payment. It may help if you qualify for a lower interest rate and a monthly payment that fits your budget. For official guidance, see the Financial Consumer Agency of Canada page on debt consolidation.
Consolidation is not always a good fit for people with poor credit or very high debt. If the new loan has a high interest rate, or if you continue using the paid-off credit cards to cover shortfalls in your budget, then the debt problem may grow.
Option three is credit counselling or a debt management plan
A debt management plan may allow you to make one monthly payment through a credit counselling agency. In some cases, interest may be reduced or stopped. Usually, you still repay the full amount owed. Learn more about getting help from a credit counsellor from the Financial Consumer Agency of Canada.
This may be helpful if you can afford to repay your debts but need structure and creditor cooperation.
Option four is a consumer proposal
A consumer proposal is a legal debt solution administered by a Licensed Insolvency Trustee. It may allow you to pay less than the full amount owed, stop interest, and make one monthly payment. Official information is available from the Office of the Superintendent of Bankruptcy on consumer proposals.
A consumer proposal may help if you have steady income and can afford to make payments but cannot afford to pay the full debt with interest. It can also stop most unsecured collection action once filed. For details on what happens after filing, see the Office of the Superintendent of Bankruptcy page on creditors contacting you after filing a bankruptcy or proposal.
Option five is bankruptcy
Bankruptcy may be considered when you cannot afford long-term consumer proposal payments or afford to repay the debts in another way. It is designed to provide a legal fresh start, but it can affect assets, income obligations and credit.
A Licensed Insolvency Trustee can compare bankruptcy with a consumer proposal and your other options so you will understand your options before deciding. Learn what a Licensed Insolvency Trustee does from the Office of the Superintendent of Bankruptcy.
The main takeaway
If you cannot keep up with multiple debts, do not focus only on the next payment. Look at the full debt load and whether the total balance is actually going down. If it is not going down, then speak with a Licensed Insolvency Trustee before taking on another loan or paying a company for promises that may not solve the problem. Information about how long details stay on your credit report is available from the Financial Consumer Agency of Canada.
Frequently asked questions
What should I pay first if I have multiple debts?
Keep essential expenses current first, such as housing, utilities, transportation and food. Then get advice on how to handle unsecured debts. A good general plan to follow is to pay the higher interest and lower balance debts first if possible.
Is consolidation good for multiple debts?
Yes, consolidation can be a good option if the rate is lower and the payment is affordable. It can be risky if it will be difficult to pay and is only creating more borrowing room.
Can one solution deal with all my debts?
Yes, a consumer proposal or bankruptcy can deal with most types of unsecured debts, but some debts need special review, such as student loans, traffic fines, and child support obligations.
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.
