In my last two posts I’ve discussed the impact of making only the minimum payment on your credit cards and provided some suggestions to avoid issues with credit card debt before they start .  Sometimes; however, families are simply unable to manage the financial burden and may have to consider other options to find relief.  Some of these options may include:

1.  Review your budget.  Increase income, decrease expenses or do a combination of these two things.  Use the extra money to pay off your debt.

2.  Consolidation Loan.  This is achieved by obtaining a loan from a financial institution and using the funds to pay off your credit card debts.  Be sure to cancel your credit cards.  Now you have one payment, just to the bank, usually at a much lower interest rate than you were being charged on the credit cards.  This option requires that you have a good credit rating, secure employment and sufficient income.

3.  Informal Negotiation/Debt Settlement.  This option involves some form of compromise with your creditors.  The creditor may agree to reduce the interest rate, lower monthly payments or accept a  lump sum payment that is less than the full balance owing so they reduce the risk of you not paying in the future.   This type of agreement is not legally binding.  Also, be aware of debt settlement companies that charge up front fees and do not contact your creditors until you have saved up money for a settlement.  Often this takes months all the while your creditors can still call you and garnishee your wages.

4.  Credit Counselling.  This non profit agency can help you review your budget and make changes to help you pay down your debt.  They offer debt management programs where they will work with your creditors to lower interest rates and lower monthly payments.  With this option you need to have a meaningful amount of money left in your budget to offer your creditors after paying your basic necessities.  It is important to choose a credit counselling agency that is accredited by the Canadian Association of Credit Counselling Services.  A debt repayment program is not legally binding.

5.  Consumer Proposal.  If you can afford to repay a portion of what is owing to your creditors but you need more time and you need the creditors to stop adding interest this may be a good option.  Usually in a proposal you offer somewhere between 30-50% of what is owing to your unsecured creditors to satisfy the debt.  You can offer the amount in a lump sum or spread the payments out over a maximum period of five years.  The unsecured creditors vote on the terms you offer and if the majority of your creditors vote to accept the proposal it is legally binding on all parties.  With a proposal, you must have a meaningful amount of money left per month after paying your basic necessities to offer to your creditors.  You also need to be confident you can maintain the payment for the duration to which you agreed since a proposal will be deemed annulled if you miss too many payments.  Only a licensed Trustee in Bankruptcy can help you file a Consumer Proposal.

6.  Bankruptcy is a process in which you assign your assets to the trustee for the benefit of your creditors.  There are certain assets that are exempt and you are entitled to keep.  For someone who has never been bankrupt before, the process is essentially a nine or twenty-one month process which is generally shorter than a consumer proposal.  During the time you are in bankruptcy, you make a monthly payment that is usually based on your level of income.  For this reason, bankruptcy is a good option if you have insufficient or unstable income.  Unlike a proposal, the creditors do not vote on whether or not to accept your bankruptcy.  Only a licensed Trustee in Bankruptcy can help you file for bankruptcy.

If you’re not sure which option is best for you, contact us and a licensed Trustee in Bankruptcy will assist you in finding the right solution.  The trustee is required, by law, to discuss all of the options that may be relevant according to your particular situation.  If an option isn’t right for you the trustee will tell you outright and point you in the right direction.

By:  Brenda D.  Owens, Trustee in Bankruptcy


Brenda works for James R. Yanch, Trustee in Bankruptcy
215 Simcoe St. N.
Oshawa, Ontario
L1G 4T1
905-721-7506
www.jamesryanch.com

In my last post I discussed the dangers of paying only the minimum payment on credit card debt.  As promised, below I’ve listed some practical suggestions you can implement to avoid issues with credit card debt:

• Pay credit card balances in full every month to avoid interest charges.
• Make the payment prior to the deadline to avoid additional penalties or interest rate increases.
• One credit card is enough.  No one needs three, four, five credit cards.
• Avoid cash advances since there is no grace period - the interest starts accruing right from the day you obtain the advance.
• Use credit cards for convenience only, not everyday purchases.
• Switch to a lower interest credit card or line of credit and cancel/destroy the higher interest rate card.
• Take the card out of your wallet and stop using it until the balance is paid in full.  
• Try to look at the bigger picture and shed the instant gratification culture in which we live.  Ultimately any debt makes you vulnerable if you get sick, lose your job, separate, or experience other “life events” which is why it’s important to examine the type of items you are putting on a credit card and ask yourself if, in the long run, the purchase is worth risking your financial well being.  Save up for the purchase instead.  
• If you must carry a balance pay at least 3x the minimum payment required and make it your purpose to put every spare dollar on the card to pay it off.

In a perfect world we would all adhere to the above strategies but do you actually know anyone who lives in a perfect world?  Well, certainly you are not alone.  Canadians are at record levels of indebtedness and one in three Canadians are unable to pay their credit card balances in full each month.  Some households are simply overstretched and their credit card debt has become an unmanageable burden.  If you’re struggling with debt you may wish to contact us to discuss some of the options I will be writing about in my next blog that can eliminate credit card debt.

By:  Brenda D.  Owens, Trustee in Bankruptcy


Brenda works for James R. Yanch, Trustee in Bankruptcy
215 Simcoe St. N.
Oshawa, Ontario
L1G 4T1
905-721-7506
www.jamesryanch.com

Credit Card Debt

If you have ever researched the impact of making only the minimum payment on your credit card, you were probably shocked to learn how long it will take to pay off the balance.  If you haven’t read all the fine print on your credit card statement, let me spell it out in a basic example:

If you owe $1,000 on a credit card that charges 18% interest:

Your Minimum monthly payment =                            $25
Total Interest Charged =                                         15
Amount of your payment applied to Balance $10

Your outstanding balance is now $990.00.  

60% of the $25 payment you made went to interest.

By continuing to make only the minimum payment (which will change every month) it will take almost 13 years to pay off the initial balance and you will have paid over $1100.00 in interest.   Your purchase has cost twice the original price. 

And consider this for added shock value: many department store credit cards charge 28% interest which means, using the above example, it will take more than 55 years to pay off  the debt and you will have paid about 10x more than the original purchase!  That’s like paying $20 for a cup of coffee.  If I told you to set fire to your money you would think I was crazy but in effect that’s what you’re doing every time you make only the minimum payment.

Now that you’ve picked your jaw up off the floor here’s the bottom line:  Credit Card companies are not in business to be your friend.  They are in the business of making money and you’re basically giving them license to take your money if you’re making only the minimum payment.   Since credit cards are the most expensive form of borrowing, the best strategy is to take steps before credit card debt becomes a problem.

In my next blog, I’ll give some practical suggestions you can implement to avoid issues with credit card debt.

By:  Brenda D.  Owens, Trustee in Bankruptcy


Brenda works for James R. Yanch, Trustee in Bankruptcy
215 Simcoe St. N.
Oshawa, Ontario
L1G 4T1
905-721-7506
www.jamesryanch.com