Debt Help in Canada: Options, Pros, Cons & More (2021)

Are you drowning in large debt? You’re not alone. Canadians owe $2.1 trillion debt as of June 2021.

As someone that helped many out of large debt, I know what it means to accrue large debt and fail your obligations. Not only will the interest rates keep growing, but debt collectors will be harassing you while your credit score is affected.

Overall, the stress and anxiety that come with such a situation could stop you from having a comfortable sleep and living your everyday life.

So while debt is not a bad thing, paying it off could be a challenging task. It can feel like there’s no way out. However, don’t lose hope! Debt help might be what you need to become debt-free once again.

Whether you’re battling with secured or unsecured debt, you may need help to clear off your debt and live your normal life.

But with several debt help options, how do you know the kind of help that will work best for you?

Based on my personal experience, here I discuss the different types of help in Canada and the factors for choosing the perfect one.

What is Debt Help?

As the name implies, debt help means assistance towards getting out of debt.

It’s well known that debt is one of the major challenges of Canadians. A report from Statistics Canada revealed that for every dollar of disposable income, average Canadian households owe $1.71.

Thus, debt has become a burden for many Canadians, not just you. However, not paying off your debt affects your ability to save, meet recurring bills, and live the life of your dreams.

This is where debt help comes in. With this help, you can pay off your debt fast with the assistance you need.

However, not all debt helps are the same. Also, each debt help has its pros and cons. This makes it essential to choose the perfect one.

What are the types of debt help in Canada? How do you choose the perfect debt help in Canada? Continue reading to find answers to these questions and more.

Who Needs Debt Help?

Everyone struggling to pay off their debt obligations needs debt help.

However, debt help may not be suitable for everyone since it has inevitable consequences. So consider debt help if you’re:

1. Struggling With Monthly Payment

If you’re struggling to meet your monthly payments, you may want to look for help.

Whether it’s due to sudden job loss, emergency or large accrued debt, you should not hesitate to seek help when you can’t meet your monthly payments

2. Disturbed By Collection Agents

When the collection calls become incessant, and you start receiving threatening letters from debt collectors, it’s time to ask for help.

That said, collection agents go to any length to harass you and cause you sleepless nights when you fail to meet your obligations. This is why you need to seek help as soon as you’re battling with your dues.

3. Looking for Fast Debt Freedom

You may feel like you’ll never be able to get out of debt. But with the right help, you can become free from debts fast.

So if you fall in any of the above categories, it’s time to seek debt help. Continue reading to find the available debt help options in Canada.

How to Get Debt Help?

There are many ways to get debt help in Canada. However, the following are the six major means Canadians use to get debt help:

1. Debt Counselling Help

Deb counselling refers to the assessment of your financial situation and objectives by a debt counsellor.

After evaluating your financial situation and objectives, a debt counsellor will offer personalized advice on how you can manage your debt and finance as a whole.

Furthermore, a debt counsellor can negotiate a lower interest rate and single monthly payments for you on your behalf.

Pros

  • Customized debt payment solutions
  • Protection against creditors
  • One monthly debt payment
  • Lower interest rate
  • Financial planning advice

Cons

  • Restriction for collecting more debt
  • May take longer to pay off your debt
  • May be costly

2. Debt Settlement

Debt settlement may be what you need if you’re struggling to meet your unsecured debt obligations in Canada.

As the name implies, a debt settlement is the process of settling your debt on your behalf by a debt settlement company.

Thus, the debt settlement company will negotiate a one lump sum payment with your creditors, helping you pay off your debt at once. However, your creditors may agree or disagree with your debt settlement company.

But when your creditors agree, you must make a one lump sum payment to them through your debt settlement company.

Pros

  • Lower debt payment
  • Fast debt payment
  • Helps avoid bankruptcy

Cons

  • Temporary effect on your credit score
  • Fees apply even if settlement fails
  • Your creditors may disagree

3. Debt Consolidation Program

A debt consolidation program is a type of debt help where all your debts are combined into a single payment.

So when you join a debt consolidation program, your counsellor will contact your creditors on your behalf to negotiate a lower monthly payment, low or zero interest rate.

However, your creditors may agree or disagree with your counsellor. But when they agree, you will be making a single low payment on all your debt through your non-profit credit counselling agency.

After that, the non-profit credit counselling agency will share the payment with all your creditors on your behalf.

Pros

  • Reduce or eliminate interest rate
  • Reduce monthly payment
  • Protection against collection agents

Cons

  • Limited coverage (not all debts are accepted)
  • Interest rate increase
  • Credit card restriction

4. Debt Consolidation Loan

A debt consolidation loan is a type of debt consolidation where you collect a loan from your financial institution to pay off your debt.

That said, a debt consolidation loan from your bank, credit union or any financial institution could be a fast vehicle to getting you out of debt.

However, it’s essential to know the consequences of a debt consolidation loan before taking it. The major drawback of a debt consolidation loan is the potential to put you into more debt.

Unlike debt consolidation programs, a debt consolidation loan allows you to continue using your credit card while consolidating your debt. As a result, you’re likely to accrue more debt with this access.

Pros

  • Lower interest rate (if you have a good credit score)
  • Simplifies your debt payment
  • Fast debt payment

Cons

  • Requires collateral
  • Could lead to more debt
  • Requires good credit score

5. Consumer Proposal

The Canada Revenue Agency recommends a consumer proposal as the suitable option for those with $250,000 or less debt (excluding mortgage). But what is a consumer proposal?

A consumer proposal is a legal debt payment option where a Licensed Insolvency Trustee (LIT) works with you to develop a payment “proposal” for your creditors.

Thus, the proposal may seek to reduce a percentage of your debt, extend the loan period or both.

So when your creditors accept the proposal, you can pay your debt through your LIT, which distributes it to your creditors.

While bankruptcy can seize your assets by cancelling all your debt, a consumer helps you lower payment and extend payment duration.

Pros

  • Lowers the percentage of debt payment
  • One single payment on all debts
  • Extends loan duration
  • Helps you avoid bankruptcy

Cons

  • Affects your credit score negatively
  • Does not cover secured debt
  • May be expensive

6. Bankruptcy

Bankruptcy should be your last debt payment option in Canada. While bankruptcy can help you eliminate all your debts, you should treat it with utmost caution.

That said, bankruptcy seizes your home equity and non-exempt assets and damages your credit, limiting your chances of obtaining a loan in the future.

Additionally, bankruptcy compels you to perform court-assigned duties that may be against your wish.

However, if you’ve exhausted all other options to get out of debt in Canada but failed, bankruptcy should just be your last option.

While filing for bankruptcy does not make you a bad person, it shows your past mistakes or difficulties in life.

So since bankruptcy is a critical option, it’s essential to speak with a certified debt counsellor before filing it.

Pros

  • Eliminates all your debt
  • Protects you against harassing creditor calls

Cons

  • Lowers your credit score
  • Limit your borrowing chances
  • Seize your assets
  • Forces you to perform court-assigned duties

 

READ: The Definitive Guide on How to Get Out of Debt in Canada

What Type of Debt Help Do You Need?

So far, I have been discussing the major options for getting debt help in Canada.

From debt counselling help to bankruptcy, it’s easy to get confused about which help you need. But it doesn’t have to be confusing.

Since each debt help has its pros and cons, it’s essential to choose the one that favours you in that regard.

When I was weighing the above options a few years ago, my focus was on my:

  • Financial situation
  • Budget amount
  • Monthly income & expenses

As a result, it was easy for me to make a cost-effective decision. So you can simply use this strategy in choosing a debt help from the above options.

This means a prior understanding of your current financial situation, examining your total debt amount, calculating your monthly income & expenses.

However, I understand that it may not be easy to choose your debt help based on my strategy. Besides, what works for me may not work for you.

As a result, I recommend consulting a certified debt counsellor to help you with a customized solution. But if you don’t know how to locate a certified debt counsellor in your area, fill this form.

Summary on Financial Debt Help in Canada

Financial debt help in Canada is becoming more popular as more Canadians continue to accrue debt.

While you can reach out to family and friends for help, using a formalized process could help you pay off your debt fast and regain your feet.

However, you must be careful of the help you choose. Since every financial debt help has its pros and cons, it’s essential to choose the one that suits your situation.

Consequently, you should not rush into choosing from the above help options without considering your financial situation, the total debt amount, monthly income and expenses.

But if you need further help in deciding the perfect option, don’t hesitate to contact a certified debt advisor in your area or fill this form.

That’s all about the financial debt help in Canada. If you have any questions or concerns, kindly drop them in the comment section.

FAQs

What is Help Debt?

Also known as debt help, this refers to assistance towards paying off debt. This could be in the form of consolidation, payment negotiation, time extension or debt elimination.

Who Can Help Me Consolidate My Debt?

Your bank, credit union or financial institution can help you consolidate your debt with a loan. Debt counselling agencies can also consolidate your debt with a debt consolidation program or debt settlement.

Who Can Help Me Pay My Debt?

Your friends and family can help you pay off your debt cost-effectively. However, formal institutions or agencies such as banks and debt counselling agencies can help you pay your debt fast.

What Happens if I Can’t Pay My Debt?

Your creditors can take legal measures against you if you fail to pay your debt. This will eventually damage your credit score and limit your future loan chances.

Does Canada Have a Debt Relief Program?

Yes, there are several debt relief programs in Canada. This includes debt consolidation program (DCP), debt settlement, debt counselling, consumer proposal, among others.

How to Get Student Loan Debt Help in Canada?

The Canadian government administers two major student loan debt help to those struggling to meet payments.

So if you’re struggling to meet your debt obligation, you can seek repayment assistance or a reduction of your monthly payments.

However, terms and conditions apply, and not everyone is eligible for this assistance.

Have more questions? Kindly drop them in the comment section.

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