Debt Relief Options For Insolvency
Depending on your circumstances and the types of debts you have, you may need legal help to resolve your debt problems. Two options are available to all Canadians, a Consumer Proposal and Bankruptcy.
Consumer Proposal
Once it is agreed to, a consumer proposal is a legal agreement between you and your creditors to settle your debts. The process in Canada is governed by the Bankruptcy & Insolvency Act and allows you to repay a portion of your unsecured debts over a period of no more than 5 years.
A lot of debt relief companies and agencies have heavily advertised and over promoted the benefits of consumer proposals vs bankruptcy you can learn more about the differences between the two here.
Bankruptcy
Bankruptcy is a legal process that someone can enter into when they are not able to pay their debts, and they do not have any assets they can sell to pay their creditors. Someone in this position is said to be insolvent. The legal process for bankruptcy in Canada is governed by the Bankruptcy & Insolvency Act.
Declaring Bankruptcy or filing a Consumer Proposal does not always provide debt relief from all of your debts. Before you choose an extreme solution to deal with your debts, make sure that you have considered all of your options. Even if you think that you are completely insolvent, you should look at alternatives to bankruptcy first to make sure that you have considered all of your options. A certified credit counsellor can help you do this.
Understand How Much You Owe
The first step is to assess your credit card debt. If you have multiple credit cards, go through your statements and make an itemized list of how much you owe on each card and the respective interest rate.
Also jot down the customer service phone numbers. Now youll have all this information stored in one place once youre ready to call your credit card companies.
Keep Your Balances Low On Revolving Credit Such As Credit Cards
How much of your available credit you actually use is called your credit utilization ratio, and it makes up 30% of your credit score. For example, if you have a credit card with a $12,000 line of credit and youve charged $9,000 in purchases recently, that means your credit utilization on that one card is 75%. That kind of ratio is going to have a negative impact on your credit scores, because, according to Experian, it can be seen as a flag to potential lenders or creditors that youre having trouble managing your finances. Experts generally agree that its best to keep your credit utilization below 30% if at all possible.
Keep in mind however, that if you pay your balances in full each month meaning, you arent paying interest charges your credit utilization will remain low no matter how much you borrow month to month.
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How Can I Pay Off A Credit Card With High Interest Rate
Paying off more than the minimum payment will obviously shorten the time to pay it off in full, as well as lessen the amount of interest you pay. But often it can take a substantial increase in a consistent monthly payment to get to a zero balance on a high interest rate card.
For instance, if you were to increase your payments to a fixed $100 per month on that card with the 21% APR and a $2,000 balance, you’ll still pay about $486 in interest charges but it’ll take only about two years to get the balance down to zero.
Researching Debt Settlement Companies
Before you enroll in a debt settlement program, do your homework. Youre making a big decision that involves spending a lot of your money money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm youre considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies youre considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.
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What Exactly Should You Say To Your Credit Card Company
If the thought of negotiation with your credit card company is intimidating, dont worry there are scripts you can use for reference. If you know what to say ahead of time, youre more likely to be persuasive and come to an agreement.
Ask a customer service representative to connect you to the department that oversees debt settlement or hardship.
If you want a lower interest rate, Dunn suggests saying something along the lines of the example below.
Hello, my name is ____ and my account number is _____. Ive been reviewing my finances and I have come across some other companies offering lower interest rates . Ive been a loyal customer, so I wanted to reach out to you first to see if you can help reduce my interest rate.
NOTE: You could also utilize a financial hardship typescript with an interest rate reduction .
If you want to settle your debt, Dunn recommends saying the following:
Its important to be patient, persistent, and careful when you decide to negotiate, Black says. Each creditor is different, so dont let one poor experience discourage you from negotiating. If your credit card company isnt willing to work with you, it may be time to get help from an outside source like a credit counseling agency.
Be proactive and talk to your card issuers before theres a problem, because they realize people are going through difficult times and theyre more willing to offer you solutions than they maybe have been in the past, Black says.
A Guide To Negotiating With Creditors On Your Own
Credit card negotiations may seem more like a myth than reality to many Canadians in debt. Some people seem to think that their are rigid. They feel theyre stuck with the interest rates on their bill and have no room when it comes to fixing any issues they might have.
Heres some good news: you are on a two-way street when it comes to credit card issuers. Armed with a strategy and useful negotiation techniques, you can set yourself up for a much better situation that will save you money in the long run, and help improve your credit profile.
People often look for expert help when it comes to negotiating big-ticket items like buying a house dealing with your creditors might be no different. If you feel up to the task, review the tips below, and they may help you make some headway with your lenders. If you need more assistance, call Consolidated Credit today for free at to speak with a trained credit counsellor or get started online with a request for a Free Debt Analysis.
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The Road To Get Out Of Debt
First, get a good idea of how much you can afford to put toward your debt, either in a monthly payment plan or a lump sum.
When you only pay the monthly minimum on a hefty balance, your debt likely will drag on for months or years, and your interest rates almost certainly will shoot up. You risk getting stuck in a cycle where the amount you owe keeps increasing even when youre making payments, and a bad credit score means higher interest rates when you borrow in the future, eventually hurting your chances to secure the best price on a car loan or find a low mortgage rate.
When you know how much youre prepared to pay on your credit card debt, its time to negotiate. Thats right: You can try to talk your way out of some of your debt.
Ways To Pay Off Your Credit Cards Faster
by Christy Bieber | Published on Dec. 12, 2021
Many or all of the products here are from our partners that pay us a commission. Its how we make money. But our editorial integrity ensures our experts opinions arent influenced by compensation. Terms may apply to offers listed on this page.
Could these techniques help you become debt free?
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Before You Try To Negotiate A Debt Settlement On Your Own
Before arranging a debt settlement, you should consult an expert to learn what your best options are. Learn about your choices and the best course of action to eliminate debt. There is no obligation to move forward. Sometimes, our clients qualify for plans that do not hurt their credit scores.
For a free consultation to see if your best option, fill out the debt relief form on this page.
Offer A Lump Sum Settlement
If you have access to a good amount of cash, or can put it together fairly quickly, you can try to negotiate a settlement with the credit card company in three payments or less . Sometimes your credit card issuer will reduce your debt to the principal you owe. For example, lets say you have a credit limit of $9,000, but with interest, fees and penalties, your current balance is $12,000. You may be able to negotiate so that you pay just three installments of $3,000. The other $3,000 you owe will be forgiven.
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How To Deal With A Debt Collector
If youre dealing with a debt collector, make sure you fully understand the debt. You need to know who you owe, how much you owe and how old the debt is. Then come up with a realistic repayment or settlement plan.
Finally comes the negotiation phase. If your debt has been sold to a third-party debt collector, youll have to contact the new debt owner, or the collection agency theyre using, in order to resolve the debt. Be clear about your financial situation. If they know you cant afford to pay much, that could make them more willing to accept a lower settlement offer. Before you send them any money, get your agreement in writing.
Negotiating Credit Card Debt
If youre drowning financially and need help with credit card bills, you may wonder if its possible to negotiate your credit card debt. Options may include a partial settlement, a workout agreement, or even payment reduction for a few months.
There are key steps to negotiating credit card debt, but theyre not simple. Youll have to find a plan that works for you when trying to negotiate credit card debt. Options include a workout arrangement, forbearance, debt management plan and debt settlement.
Debt settlement program
With a debt settlement program, you negotiate a settlement for less than the full amount owed. The credit card debt negotiation depends on whether or not the individual creditor will work with you. And you need to understand that paying less than you owe impacts your credit score and some forgiven debt is viewed as income and may have tax consequences.
Debt management program
With a debt management program, a certified counselor negotiates credit card debt arrangements for you. Youll pay back your principal in-full, but your interest rates are reduced or even eliminated. Late fees and penalties may be waived. Youll only have one payment to make each month instead of several. Your credit score stays intact and may even improve while on the program. The key to a successful debt management program is that more money goes to eliminating the principal, while high interest rate charges end.
Workout arrangement
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Offer A Lower Lump Sum Payment
You also can try to negotiate a large one-time payment that is less than your balance, but the bank would accept the amount to pay off and close the account. For instance, if your balance including the interest and fees reached $5,000, you could offer to pay the amount of your original credit line of $3,000.
If the card issuer accepts, you could save thousands of dollars, and your debt will be considered paid in full.
Refinance Using A Personal Loan
Refinancing to a personal loan is one of the single best techniques to becoming debt free ASAP. This approach helps you in a few different ways.
First, the interest rate on a personal loan is usually well below the interest rate on a credit card. Any time you can reduce your rate, it will make paying off debt easier by reducing the cost of borrowing. When less money goes toward interest, more goes toward reducing your principal balance quickly.
Second, personal loans have fixed repayment schedules. You decide what repayment term you want when you apply for your loan. Then, your minimum payments are set up to pay off the loan on time and quicker. You can choose a loan with the shortest repayment time that comes with monthly payments that are affordable, and youll know exactly when you’ll become debt free.
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Diy Debt Settlement As A Viable Option
When you choose the DIY approach, it puts the power back in your possession. You speak directly to your creditors and can save both time and money in the process. Are you unsure of how to accomplish this?
You negotiate credit card debt and possibly:
- Reduce your interest rate
- Lower the overall total by offering a partial payment
- See a better credit score over the long term
While it may be scary and challenging to achieve, creditors prefer receiving at least partial compensation for what you owe. If you come to your lenders with a reasonable plan and offer, they are more likely to agree. The chances increase if you offer a fair lump sum payment.
However, not everyone who attempts it is successful. Its not impossible, but more difficult for an individual to accomplish. If you know your rights, have a plan, and budget in place, you may be able to sway them without involving a third party.
Be Prepared For Creditors Calling About Your Delinquent Debt
During this process, expect a lot of phone calls from creditorseven bordering on creditor harassment. While you want to do this on your own, it is a lot of work with a lot of problems. Working with a settlement law firm can help you and make sure that the collection agency is following the Fair Debt Collection Practices Act, which lays out when the credit card company can contact you, what they can and cannot say to you and other illicit debt collection practices. Make yourself familiar with these and the complaint process in case a creditor does not follow these rules so you know how to protect yourself from creditor and creditor harassment.
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How To Pay Off Credit Card Debt
9 Minute Read | October 04, 2021
If youve got credit card debt, it can feel like the life is being drained from your income every month. Purchases from months ago are haunting you and holding you back from doing what you want with your money today.
We get it. Weve felt the weight debt can put on you. And. It. Sucks.
The good news is, it doesnt have to stay like this. Use the tips and info here to learn how to pay off credit card debt. Put this months income back into this month. And then you can start putting more of it toward the future you want.
How Long Does It Take To Rebuild Credit After Debt Settlement
Your overall credit history will play a role in how fast your credit bounces back after settling a debt. If you otherwise have a solid credit history and have successfully paid off loans or are in good standing with other lending institutions, you could rebuild your credit more quickly than if you have a larger history of late payments, for example.
The further in the past your debt settlement, the better your credit report will look. Still, there are some things you can do to help your over time by focusing on establishing a solid credit repayment pattern:
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Payment Plans And Partial Payments
There are a few different methods of lowering your debt that may be acceptable to a collector:
- Partial repayment. When dealing with a collection agency, start your negotiations low. Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose.
- A payment plan. Spend some time laying out your monthly budget. How much money do you think you’ll be able to put toward a recurring debt payment? If you had difficulty making the payments under the terms of the original creditor, you may be able to negotiate a lower monthly amount with the collector.
Does Negotiating Credit Card Debt Affect Your Credit
Negotiating credit card debt can hurt your credit, which is why it’s best to consider other options first.
If you’ve missed any payments, your credit score will already have taken a hit. And credit card companies often won’t negotiate credit card debt until you’ve been late on paying your bill.
Here are the ways negotiating credit card debt can affect your credit, depending on the type of agreement you reach with your card issuer:
- When you settle a debt, creditors generally report the debt as settled, rather than paid in full. This will be a negative mark on your credit report because it shows you didn’t fully repay money you borrowed.
- If the card issuer cancels your credit card, it will reduce the available credit you have, which can increase your . It can also reduce your average credit account age. Both those factors can impact your credit score.
The good news is that after you negotiate your credit card debt and fulfill your end of the agreement, you won’t have additional late payments or high balances recorded on your credit report. With no new negative information being posted, you can start to rebuild your credit.
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