1. Sell assets to pay the debts: If your debts are less than the value of the assets you own, then one option is to sell or cash in your assets and simply pay off the debts. For example, if you have $50,000 in an RSP and $20,000 in credit card debt, then a solution for you would be to cash in the RSP’s to cover the debt. The key is to get rid of the credit cards once they are paid off. If needed, only keep one with a smaller, more manageable limit. If you choose to sell assets make sure you consider the tax implications.
2. Remortgage your house: If you own your own home and the value of the home is greater than the mortgage amount, you might be able to redo the mortgage and have enough to pay the mortgage as well as your other debts. Be aware, this will increase the length of time left on the mortgage. I suggest you work with your mortgage company or a mortgage broker to ensure you are getting the right mortgage for your situation.
3. Consolidate the debts into one loan: If your situation is one in which you can afford to pay all of your debts back, but just have too many creditors to pay each month, then a consolidation loan may work for you. A consolidation loan is where you get a loan from a bank to pay off all of your debts, leaving you with just one loan payment to make.
4. Credit Counselling: In this case, you work with a qualified credit counselor to make a budget aimed at paying down your debts over time. Following a budget takes discipline and you need to be 100% committed. It you do not follow the budget closely the debts will not get paid down. Credit counselling works great if you have enough income per month to deal with your monthly commitments, but have not been able to keep track of or stay on top of it in the past.
5. Debt Management Plan: A debt management plan is a voluntary agreement between you and your creditors to allow you to pay back all the debts but under set payment terms. It is like a consolidation loan; however it is not a loan. The interest is eliminated or reduced to a lower amount. This option works when someone’s debts are manageable, but they cannot get ahead with the interest charges.
6. Consumer Proposal: A is an offer to your creditors through a trustee in bankruptcy that allows you to make one affordable monthly payment to all of your unsecured creditors. Through the , you pay a portion of your debts back to allow you to rebuild your financial situation. A allows you to protect your assets and stop wage garnishments. A consumer proposal is done under federal law and is monitored by the government for your protection. The trustee is paid through the and not a direct cost to you.
Posted on January 5th 2011