It’s ok.!!
Let’s start with that! Stop beating yourself up over your finances. Sometimes (often!) things do not go according to plan. Sure you can blame yourself, but that is not what is going to get you back on the right path financially. So…pause….take a deep breath….ask for the solution that is best for you at this moment…and read on…
When it comes to fixing your finances there are only a handful of options. You can use your own skills (or obtain new ones) and get yourself out of this sometimes with a few tweaks to your current plan, sometimes with a complete overhaul, or, you can seek professional guidance. Below are the options, in logical order. As you read through them, you will get a sense of what option is the best for you. If you don’t, no worries, send me an email and I can help you figure out what your next step should be.
Budget Yourself out of Debt
Arguably this can be the simplest or the hardest, depending on many factors – your skill set, your lifestyle, how deep in Debt you are, your relationship with your spouse/partner and the willingness to work together. It involves looking at your finances from every angle and leveraging your resources. It can take months or years, depending on your starting point and your commitment. Here are the main areas you will want to explore. Click on each one for an expanded list of suggestions on ways to do this (coming soon!)
ADVICE: It is always advisable to have an expense tracking system in place before you start this process. That way, you will know if you are making progress.
- Increase your Income
- Decrease your Expenses
- Liquidate / Sell your assets (belongings)
- Renegotiate rates / terms on your existing credit
Refinance yourself out of Debt
This is different from renegotiating your rates/terms of existing credit and involves obtaining a new loan to pay off existing debt. This can be accomplished in a variety of ways including:
- Remortgaging your home *borrowing on the equity*
- Taking out a Home Equity Lines of Credit
- Obtaining a Consolidation Loan or New Line of Credit
- Increasing the limit on Existing Credit
WARNING: The new payment has to fit into your Spending Plan. If you reduce your monthly payment but not by enough to balance you spending plan, this isn’t a solution, it’s a short-term fix to a bigger problem.
Pay back a percentage of your Debt / Debt Settlements
If there is absolutely no way you can budget yourself out of this, and all attempts to refinance yourself out of this have failed, you may need to consider offering some type of debt settlement. There are basically three ways you can do this:
- Voluntary Debt Settlement
- Structured Debt Settlement
- Forced Debt Settlement
Voluntary Debt-Settlement
This can be achieved by either you, personally contacting your creditors and offering a settlement or having a third-party do the work for you, for a fee. There are many organization out there and I caution you to tread carefully and do your research as some are more reputable than others. The fees tend to be quite high versus other alternatives. However, creditors are more likely to negotiate with you if you have a professional representing you.
Related post: The Uncomfortable Cost of Credit Counselling
Structured Debt Settlements
Under the Bankruptcy and Insolvency Act, there are two options to settle your debt that offer both creditor protection and a mechanism to potentially force all creditors to accept the settlement (if a certain percentage of credits accept, the rest have to). They are a Proposal and Consumer Proposal. I will only be referring the Consumer Proposal here as it is the most relevant to my audience.
Consumer Proposal
The short version is that, with the help of a trusted professional (a Licensed Insolvency Trustee), you offer your creditors some percent back on what you owe them. It could be any percentage, 10 cents on the dollar, 30 cents on the dollar, 80 cents on the dollar, etc. Your creditors get to vote, they get one vote per dollar you owe them and if the majority accept (based on dollar value), then the rest have to.
There are really only three stipulations (criteria), the payment should be something you can manage comfortably, it has to be paid within a 5-year period and the percent you offer should be better than what they would get in a bankruptcy (last option). Why? Because if they do not accept the proposal, although you do not have to declare bankruptcy, it is often the only other option on the table.
Forced Debt Settlement
And that leads me in to the final option – declaring personal bankruptcy. Bankruptcy is also a debt settlement. Contrary to what people think, it is a myth that you creditor do not get anything in a bankruptcy. Sometimes they do, sometimes they do not, it depends on the situation. They do not, however, get to vote on whether or not you can declare bankruptcy. The main considerations most people have in whether or not bankruptcy makes sense for them is what it costs (yes, there is a fee, and it varies depending on your income), what you will be giving up (the possibilities here are way too long and varied to explain them here), and the impact on your ability to re-establish credit.
It is important to note that any type of settlement will impact your credit report essentially the same way. From a lenders perspective they often take the position that you either paid your debt in full and on time, or you did not, and no merits are given to paying back a larger percentage in one option or the other.
And that’s it, those are the options. Of course the are many nuances to each of them depending on your personal circumstances. Having said that, it takes me approximately 30-60 minutes of reviewing your sitution to outline the details, consequences and cost of each. If you would like to book a FREE 1-hour consultation, email me.