What do you do when credit card debt is overwhelming and out of control. Here is how YanchDey can help to get you out of debt and financially back on your feet…
How to Pay off Credit Card Debt
In my last two posts, I’ve discussed the impact of making only the minimum payment on your credit cards and provided some suggestions to avoid problems with credit card debt before they start.
Sometimes; however, families are simply unable to manage the financial burden and may have to consider other options to find relief. Some of these options may include:
Reviewing your budget
When you’re in debt you either have to increase your income or decrease your expenses, or combination of both.
Try to go through your budget line by line and see if you can reduce expenses even by small amounts. Really think about choices you make, small changes add up.
What is the cost, is it actually a wise amount to spend, as little differences can start to add up.
Is it possible to increase your income? Can you get a second job, one or two days a week and put that money towards your debt?
A debt consolidation loan is where you go to a financial institution (your bank) and for a loan at a lower interest rate to pay of credit and unsecured debt.
This is achieved by obtaining a loan from a financial institution and using the funds to pay off your credit card debts, once that is done we suggest that you cancel all credit cards except one bank card that you leave at home for emergencies.
With a consolidation loan you have one payment, just to the bank, usually at a much lower interest rate than you were being charged on the credit cards. This option requires that you have a good credit rating, secure employment and sufficient income.
Informal Negotiation or Debt Settlement
Debt Settlements involves some form of compromise with your creditors.
The creditor may agree to reduce the interest rate, lower monthly payments or accept a lump sum payment that is less than the full balance owing so they reduce the risk of you not paying in the future.
This type of agreement is not legally binding. Also, be aware of debt settlement companies that charge up front fees and do not contact your creditors until you have saved up money for a settlement.
Often this takes months all the while your creditors can still call you and garnishee your wages.
In a consumer proposal if you can afford to repay a portion of what is owing to your creditors but you need more time and you need the creditors to stop adding interest this may be a good option.
Usually in a proposal you offer somewhere between thirty to fifty percent (30-50) of what is owing to your unsecured creditors to satisfy the debt e.g if you owe ten thousand (10,000) dollars the debt would be reduced to three to five (3-5) thousand dollars.
You can offer lump sum payment or spread the payments out over a maximum period of five (5) years.
If the majority of your creditors accept your proposal, it is legally binding on all parties. With a proposal, you must have a meaningful amount of money left per month after paying your basic necessities to offer to your creditors.
You also need to be confident you can maintain the payment for the duration to which you agreed since a proposal will be deemed annulled if you miss too many payments. Only a Licensed Insolvency Trustee can help you file a consumer proposal.
Filing for bankruptcy is a process in which you assign your assets to the trustee for the benefit of your creditors. In bankruptcy there are certain assets that are exempt and you are entitled to keep.
For someone who has never been bankrupt before, the process is essentially a nine or twenty-one month process which is generally shorter than a consumer proposal.
During the time you are in bankruptcy, you make a monthly payment that is usually based on your level of income. For this reason, bankruptcy is a good option if you have insufficient or unstable income.
If you’re not sure which option is best for you, YanchDey can assist you in finding the right solution.
Our trustees will discuss the options that may be relevant to your particular situation. If an option isn’t right for you, we’ll tell you outright and point you in the right direction.
About the Author
Brenda Owens is a licensed insolvency trustee having graduated from the Durham College Business Administration Accounting Program, with Honours, in 1993.
In October of that year, 1993 Brenda accepted a position with James R. Yanch, and received her Insolvency Trustee License in 2007 and started working as a bankruptcy trustee.
Over the years, Brenda’s ability to listen and thoroughly explain the insolvency and bankruptcy process and Consumer Proposals has helped hundreds of families regain financial control in Oshawa and Durham Region.