How to Lower Debt Stress With the Help of an LITNov 21, 2018
Are you familiar with all your debt repayment options? Did you have a plan to pay down debt at the beginning of the year but lost momentum along the way? Since November is Financial Literacy Month, now is the perfect time to get re-acquainted with your start-of-year financial goals, boost your financial knowledge, and knock down some debt before the end of the year.
High debt = high stress
You might be surprised at how many people are feeling overwhelmed by their debt — one-in-four Canadians according to our recently released Affordability Index. Some of those who are feeling it the most are millennials, parents, those paying off a mortgage and with no retirement savings.
What’s alarming is that the respondents who said they’re overwhelmed by their debt also said they didn’t know what to do about it.
So let’s shed some light on the subject of debt relief.
What is the role of an LIT?
When debt has reached an overwhelming level, a Licensed Insolvency Trustee (LIT) is a good starting point. They’re the only debt professional qualified to offer formal debt solutions, which include a consumer proposal or bankruptcy. The role of an LIT is also to explain all non-formal debt repayment options too. Your first appointment is a cost-free, obligation-free consultation where your LIT will go over all your debt repayment options in detail once you’ve offered some background info about your situation.
What are some of my debt repayment options?
Formal debt options such as consumer proposal to your creditors or a bankruptcy are only used as a last resort. You can learn more about these options on our website or from the Office of the Superintendent of Bankruptcy.
Often, your LIT will recommend a non-formal debt solution such as:
- Debt consolidation – You can do this yourself by combining high-interest credit cards into a low-interest line of credit. Or, you can speak to your bank about how to combine all your debts into a debt consolidation loan with one monthly payment.
- Credit counselling – A credit counsellor can offer advice on how to manage money, budget your income or, they may offer you help through a debt management plan. A DMP is also known as an informal proposal which involves your credit counsellor speaking to creditors on your behalf to lower interest on your debts and extend your repayment time. They can also consolidate your debts into one monthly payment. It’s important to do your homework so you can find a trustworthy, accredited company before signing any contracts.
- Budgeting/reducing expenses – Many Canadians have found success in dealing with their debt by sticking to a budget. Use a worksheet or budgeting app to get started. Next, find areas in your budget that can be trimmed, even temporarily, so you can funnel more money toward debt repayment. Other options might be taking on extra work, selling off possessions or using a DIY debt method such as the debt snowball.
What if I need a formal debt solution?
Sometimes, a formal solution is the best option to deal with your debt. The good news is that your LIT will guide you through each step of the process and explain each part in detail.
A consumer proposal is often preferred to bankruptcy because it allows you to repay a fraction of your debt over a specified period of time while allowing you to keep all your assets.
Bankruptcy, on the other hand, may require you to surrender some assets in order to repay your creditors. Both are a way to start over financially and put an end to harassing phone calls, wage garnishments or snowballing interest charges.
Whatever debt repayment option you choose, it’s a good idea to do your homework beforehand. This can help put your mind at ease and also find a solution that fits your lifestyle. Use this debt repayment calculator to compare your options today.