What are my options?
If you are in debt over your head, you may very well be asking “what are my options?”. There are four possibilities that we will consider in this article.
1. Pay my creditors as they become due;
2. Consolidate into a mortgage;
3. File a proposal; and
4. File a bankruptcy
For each scenario we will assume that the problem debt is $60,000.00 of credit cards, loans and lines of credit.
Paying the bills as they become due is always the best option. In this case we are assuming that you will make minimum monthly payments and the average rate of interest is 15%. In fact, some credit cards may have compound interest rates of more that 30% and some lines of credit may be in the high single digits (7% or 9%).
Making minimum monthly payments would result in payments over about forty years and a doubling of the face value of the debt – in other words you would repay about $120,000.00. Your credit rating may be good but access to credit may be denied because your debt service ratio would be out of balance.
In this scenario, assuming an interest rate of 5% you would repay about $111,000.00 at an increased amount of about $371.00 per month for twenty-five years. Your cash flow might be better than for option 1. And your ability to obtain more debt would be better than in option 1.
Filing a consumer proposal, could, depending on your specific circumstances result in you repaying as little as $10,000.00 at a rate of about $170.00 per month for a term of five years. As discussed in other blogs this would result in your credit rating being negatively impacted for eight years, unless you pay out the proposal earlier.
In this case, the assumption is that you have no assets to settle with and limited income, you’re not in a surplus income position. You might be debt free in nine months and at a cost of about $1,800.00.
Be mindful that bankruptcies can have other unintended consequences so before jumping to conclude it is the best option thoroughly research that prospect with a Licensed Insolvency Trustee to see if it is right for you.
The point is that you do have options, and for some people the one that they fear the most is the very best things they can do to get out of debt and get on with living.