September 5, 2017

It can be done but may have an unexpected cost.

Far too many people depend on credit rather than wages to be able to pay for the necessities of life.  Unfortunately debt doesn’t just ‘go away’ it must be addressed and dealt with appropriately.

The best way to get out of debt is always to simply pay your bills as they become due.  Unfortunately for a growing number of Canadians it isn’t always that simple, a loss of a job, a marital separation or some other factor causing a reduction in income can trigger all sorts of problems.

Credit (or more accurately debt) should be used to assist in emergency situations or as a convenience but not as a means of funding or supporting a lifestyle.  As a general rule if you can’t pay off your credit cards and lines of credit within a few months you are in debt beyond your capacity to manage effectively.

So how do you get out of debt without resorting to bankruptcy?  There are a few choices the most effective of which include changing your lifestyle, moving to cheaper accommodations and sharpening your budgeting skills.

Engaging a credit counselling service can be very costly.  Even the not-for-profit services are funded by the Canadian Bankers Association as well as other major lenders and in addition to being paid a commission (a fixed percentage) for collections they also charge a monthly administrative fee for their services.  Many of their debt management programmes fail or force people to live in poverty to manage payments.

For profit agencies can do little or nothing to help beyond making a referral to a trustee, with whom they work, after charging a substantial fee for service.  Most of them promise options that do not include bankruptcy but fail to mention that the proposals they are advertising and pushing clients towards must be filed a licensed trustee.

Lawyers and collection agencies can help with debt settlement services but are frequently faced with either issues of conflict of interest or challenges with fees.  If you have relatively few debts or a low amount of debt the debt settler may be restricted by Bill 55 to a low level of fees.

For most people the best option is still a licensed trustee in insolvency & restructuring (formerly trustee in bankruptcy).  Trustees do not force people to file for bankruptcy but rather lay all of the options available, including going it alone, or filing some form of proposal.

It is important to realize that all options from making regular payments to filing a formal insolvency proceeding with have an impact on your credit report and even paying your bills as they become due may leave you ineligible for further credit (debt).