Line of credit debt relief
Are your loan and line of credit payments consuming your paycheque?
We can help you find a solution to slash your debt and let you keep more money in your pocket
The financial risks of borrowing
When you spot a high-ticket item you want to buy, it can be hard to resist charging the purchase to a line of credit instead of waiting until you’ve saved enough money. Given how easy it is to access credit when needed, borrowing money to make purchases instead of relying on savings can be a tough habit to break. By the time you need to make those payments, you might feel less proud of your decisions. Now your looking for line of credit debt relief on purchase you no longer want or need.
Too much borrowing through a line of credit, overdraft protection, or a personal loan can lead to challenges in meeting payment deadlines. You can quickly become overwhelmed while also paying for housing expenses, food, clothing, etc. And we’ve all been there, so we say this with no judgment!
Are you seeking a way to escape gruelling loan and line of credit payments? If so, there are debt relief options available in Canada. Some will help you reduce your interest charges. Others will enable you to eliminate all or most of your debt obligations.
Our welcoming and experienced team of Licensed Insolvency Trustees can help you map out the right strategy to achieve financial freedom from burdensome debt. You can then focus on pursuing your life goals and the things that matter to you the most. No more scrambling for cash to ensure you make your upcoming line of credit payment!
David Sklar discusses some important things to consider before leveraging your line of credit.
A line of credit can be a helpful financial tool, but it’s very easy to get carried away and find yourself making payments you can not afford.
How a line of credit and other loans can land you in financial trouble
Drawing funds from a line of credit or taking out another type of loan to pay for a wide array of purchases is common among Canadians. In fact, the average Canadian’s debt load is $21,000, excluding mortgages.
There are several reasons lines of credit and loans are so popular:
- They’re widely available at banks, credit unions, and various finance companies
- They offer low interest rates compared to credit cards and payday loans
- Many come with flexible payment schedules
- Most don’t require collateral to qualify
- The borrowed funds can be used to finance almost any type of purchase
- There’s no extensive paperwork to fill out or long wait period to obtain approval
However, the advantages that lines of credit and loans offer can also spell trouble for you as a borrower. Because these loans are so convenient, flexible, and cost-effective, they can entice you to borrow constantly to finance ever more purchases. And once you’re on the hook for multiple large balances, coming up with the money each time a due date arrives becomes increasingly challenging.
Lines of credit are especially hazardous since the flexible payment schedules encourage you to pay off only the interest charges each month and defer the principal. Once principal payments become due, you may lack the money to begin paying down the balance.
In addition, lines of credit come with variable interest rates, which means your interest expense will fluctuate according to your lender’s prime rate. Should the prime rate rise, so will the interest you pay on your outstanding balance.
Though personal loan and line of credit debt can quickly spiral out of control, you can reign it in with the right strategy.
Here are the three best options to consider:
- Consolidating your debt
- Filing a consumer proposal
- Filing for bankruptcy
Let’s explore each in more detail.
Consolidating your debt to save on interest costs
You can reduce your interest expense by consolidating your existing loans and lines of credit under a new single loan at a cheaper rate. Not only will you save money and repay your balance sooner, but you won’t need to juggle multiple payments.
Here are two ways to go about merging your debt under a single payment plan:
Debt consolidation loan
This is a type of personal loan geared towards paying off high-interest debt. As with other personal loans, you use the proceeds to pay down your existing debt and then pay off the new loan in installments.
However, there are some key disadvantages to be aware of before pursuing this strategy.
First, you’re still responsible for repaying the entire principal. Essentially, all you accomplish is substituting one type of loan for another.
Second, you’ll likely need a strong credit score to qualify for a debt consolidation loan.
Third, a lender who offers you the former may require collateral to secure the loan. Thus, you risk losing one or more assets if you default on your payments.
Debt management plan
Like a debt consolidation loan, a debt management plan allows you to blend your existing debt. However, the process doesn’t entail taking out a new loan. Instead, a credit counsellor from a nonprofit organization assists you in negotiating a lower interest rate with your creditors They’ll also help you structure a manageable payment plan for you.
As with a debt consolidation loan, a debt management plan has shortcomings.
First, the strategy is geared primarily toward resolving credit card debt. As a result, you may not be able to strike a deal to lower interest on a line of credit or personal loan.
Second, your new repayment plan isn’t a legally binding contract. As a result, lenders can still chase you for payment and initiate lawsuits against you
Shrink your line of credit debt and loan debt using a consumer proposal
A consumer proposal is a debt relief program administered by the federal government under the Bankruptcy and Insolvency Act (BIA). It’s aimed at borrowers who’ve exhausted all options to manage their loans, lines of credit, credit cards, and other unsecured debt.
By filing for a consumer proposal, you automatically receive legal protection against lawsuits from creditors, asset seizures, and wage garnishment. Intrusive collection calls will cease as well.
Similar to a debt management plan, you’ll have the opportunity to negotiate a new payment plan with your creditors. Depending on your circumstances, you may be able to discharge up to 80% of your debt. And the consumer proposal ends all further interest charges or fees.
One major drawback comes with a consumer proposal – it’ll result in a downgrade to your credit score and remain on your credit report for up to three years after completion. However, you’ll be better equipped to manage your payments as you’ll be responsible for a much lighter debt load.
Only a Licensed Insolvency Trustee can carry out a consumer proposal in Canada on your behalf.
Eliminate your line of credit debt and loans through bankruptcy
Bankruptcy is another federally regulated debt relief program offered under the BIA. Like a consumer proposal, it serves to help indebted individuals discharge their debt. But it’s typically reserved as a last resort to achieve debt relief, as it has harsher financial consequences.
Filing for personal bankruptcy grants you legal protection from your creditors and puts a stop to collection calls, just like a consumer proposal does. All, or most, of the unsecured debt obligations that have caused you so much grief, will be erased. Once you complete bankruptcy proceedings, you’ll have the chance to start fresh and rebuild your credit.
However, the legal proceeding requires you to relinquish control of your assets to settle your debts, which is its major drawback. Luckily, you won’t lose completely everything you own – here’s what assets you get to keep if you declare bankruptcy.
As with a consumer proposal, only a Licensed Insolvency Trustee can administer personal bankruptcy on your behalf.
Our professional recommendation for achieving debt relief from lines of credit and loans
Turning to debt to satisfy a bit of retail therapy is okay occasionally. And, of course, borrowing money to pay for an emergency expense, such as a car repair bill, is both necessary and wise. But an overreliance on debt can quickly lead to financial ruin if you’re not careful.
In no time, you can find yourself stuck with a mountain of personal loans and maxed-out lines of credit. The day may come when you need to choose between paying your electricity bill or the minimum payment required on your line of credit account.
Consolidating your debt using cheap financing is one option you can explore to tackle your debt problems. But at the end of the day, you’re simply exchanging old debt for new debt. If you continue to borrow from Peter to pay Paul, you’ll be in debt forever!
If a debt consolidation loan is not an option, consider a debt relief or forgiveness solution. Two options include filing a consumer proposal or declaring personal bankruptcy. Both debt-relief programs can give you the chance to rid yourself of burdensome debt forever. And once you emerge on the other side, you’ll have the foundation to get your finances and life back on track.
Use our debt consolidation calculator to weigh your options, and then book a call with us! We can explain everything in more detail so that you make the most informed decision possible in tackling your debt. No matter which option works best for you, we’re here to help you every step of the way!
Debt Calculator
A Consumer Propsal, can reduce what you owe BY UP TO 80%
With a consumer proposal at 0% interest, you will only have to pay back:
$3,480/$58 per month
*This calculator is for demonstration purposes only. Your results may vary based on your unique financial situation.
Advice on Loans/Line of Credit Debt
Getting into debt is easy. Getting out is a different story.
But it's still possible!
Did you know there is a Debt Program federally regulated by the Canadian Government, designed to help citizens avoid claiming bankruptcy? This amazing program can only be administered by a Licensed Insolvency Trustee (LIT).
If you’re struggling to make your payments every month and creditors won’t stop calling, we can help.
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