WE’RE DOING OK . . . AREN’T WE?

Across Canada today, millions of folks consider consumer debt – personal loans, credit cards, bank overdrafts and lines of credit - their constant companion. And most of them are convinced they’re in control.

In fact, many are enjoying easy living at an enormous cost.

Assuming a typical blend of gas, department store and bank cards averaging $10,000 at 18.5% interest, the balance will be paid out in 28 years – yes, years – at a cost of some $14,423 in interest.

Are they in control? If one or more of the following sounds familiar, there may be a debt problem.

  1. Using credit cards for essentials like groceries.
  2. The credit cards are at or near their limits.
  3. Taking cash advances on the cards.
  4. Unable to remember the last time the balance on the cards, overdraft and/or line of credit was zero.
    Making minimum payments on the cards.
  5. Having three or more credit cards.
  6. Taking cash advances from one card to make payment on another.
  7. You are paying 20% or more of your net take-home income to service your loans (excluding the mortgage) and credit cards.

There are really only four solutions available for debtors in crisis. A consolidation combines all outstanding unsecured debt (credit cards, lines of credit, overdrafts, etc.) into one loan. The tradeoff is that lenders will usually insist on securing by collateral such as real estate. If consolidation isn’t an option, there is always Credit/Debt Counselling (also known as Credit/Debt Management).  Participating creditors will provide concessions, chiefly in the form of interest reduction, in return for receiving regular monthly payments. Bankruptcy  - society’s escape from an untenable financial situation – is a third option. There are consequences, principally a negative hit on the bankrupt’s credit bureau history. What most consumers don’t realize is that bankruptcy becomes a matter of public record, going far beyond a credit bureau report.

Finally, there is debt settlement, also known as debt arbitration. It is a process by which a debtor eliminates his/her unsecured debt by negotiating with creditors. This is almost always accomplished through the services of professional Certified Debt Arbitrators. The savings can often be spectacular, with reductions ranging from between 50% to 80% of outstanding debt levels. The key is to have access to some funds – from a family member or friend, a redeemed RRSP or savings, sale of an asset, perhaps a loan from a lender – because creditors who agree to settle expect the funds immediately. Debt settlement is an excellent alternative for those considering bankruptcy, the debts being settled without all the ‘baggage’ that accompanies a bankruptcy.

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