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Great Reset and Credit Kiting

July 15, 2021

Consumer Proposals provide a “Great Reset” opportunity for people with debt problems, and who want to avoid bankruptcy.  Consumer proposals are frequently advertised to reduce debt by 80% – in fact, they can reduce your debt by much more than that.  We have seen proposal’s that reduce debts by more than 95%.  Everyone is different, the results are never a cookie-cutter value.

A lot of people use one form of credit to pay for another, a bit like the peanut and the shell game.  The balance of one credit card is transferred to another credit card – sometimes to get 0% interest for six months.  Payments are made by using a credit card that is being paid by a line of credit that in turn is paid by an overdraft, that is then paid by using a different credit card and so on.

Before people had access to credit cards and lines of credit, cheque kiting was a common way of getting through a tough spot.  How it works, a person might write a cheque on an account that has no funds, knowing it would 4-5 days for the recipient to process the cheque.  The cheque would then be covered by a paycheque deposit.  Some kiters would use more than two bank accounts to keep the illusion of money moving around.  In any event cheque kiting is a form of fraud, but that is not so with credit (card) kiting – as long as there is available credit.

Credit kiting is not illegal because of the nature of credit, but it does become a financial trap for people who (mis)use credit in that way.  A few years ago, Trans Union reported that some 70% of people filing for bankruptcy had strong credit scores at the time of their filings.  Credit kiting explains how they were able to achieve that, they borrowed from one card to pay another.

Having a great credit score is very important to your financial life, but a great credit score alone serves little purpose if debts are not being paid down.  Moving credit from one (credit) product to another is similarly of little help, even though it leaves credit scores relatively intact.  From the start of the housing boom, homeowners have taken to consolidating credit card and other debts into mortgages or secured credit lines, mostly because of low interest rates.  But the debt is still not being paid, just moved around.

A consumer proposal can provide a great reset for large volumes of unmanageable debt.  A consumer proposal can reduce the total amount of debt, and reduce monthly payments to a manageable level, as well as helping a debtor get back on their financial feet and allow them to reset their debts.

Call us for more information, 519-646-2222