What debt relief options could help you get your life back on track?
If like many Canadians, you’re feeling the financial pinch, it’s likely you’re suffering from cash flow problems. You’ve got too little cash coming in, and too much going out. Every month you are in danger of falling deeper into debt. This may already be happening. It doesn’t have to be like this.
If your debt repayments are crippling your finances, a consumer proposal could repair your bank balance and improve your cash flow. You could get your life back on track, relax a little, and stop worrying about where the next dollar will come from.
The average Canadian has cash flow problems
Household debt in Canada has rocketed in recent years. Canadians now owe more than $2 trillion. For every $1 dollar of disposable income, the average Canadian owes $1.74. This is up from $1.48 only 10 years ago.
In the three months to December 2018, almost 32,000 Canadians filed for bankruptcy – the highest quarterly figure since 2010. Delinquencies on car loans are running at their highest rate since 2008/9. To keep their heads above water, Canadians are borrowing on home equity lines of credit (Helocs) at an alarming rate. According to Bloomberg calculations, Heloc balances in Canada averaged $4,849 per capita in October 2018: more than four times the equivalent balance in the United States.
In short, the average Canadian has cash flow problems. Servicing debt is leaving the average Canadian close to bankruptcy.
What are your options to improve your cash flow?
If you don’t fancy several more years of cash flow misery, it’s time to consider your options. More overtime would help, but then you’d never see your friends or family. No amount of money can replace that time lost.
So, let’s look at realistic options to improve your cash flow. And let’s look at how you might become debt free within not eight, but five years. The simplest way to show you is to consider a debtor with unsecured consumer debt:
- Shaun has consumer debts of $50,000.
- His monthly payments are $1,000.
- He makes $3,000 per month after tax.
- Shaun has no dependents living with him.
Shaun has four options open to him. He could:
- Try to repay the debt on his own
- Enter into a debt management plan
- File personal bankruptcy
- Make a consumer proposal
Let’s examine each option in turn.
Repaying Debt on Your Own
To pay off his debt on his own, Shaun will have to make monthly repayments of approximately $1,340 – more than a third of his net pay each month. He will repay a total of more than $80,000. He’s struggling now, with far lower repayments. What if he misses a repayment, or has a financial emergency?
- Monthly repayment = $1,340
- Total repayment = $80,400
Debt Management Plan
Through a credit counsellor, Shaun might arrange a debt management plan. He must still repay his debt in full, but would not pay any interest. However, the credit counsellor would charge for the service they provide. Still, Shaun’s repayments reduce dramatically from what he would pay by flying solo with his debt. They would reduce to around $875 per month (including the credit counsellor’s charges).
- Monthly repayment = $875
- Total repayment = $52,500
Shaun could file for personal bankruptcy. When you file for bankruptcy, the amount you repay depends upon how much you earn and not what you owe. The bankruptcy order will also consider the value of your assets. In rare cases, the bankrupt may not need to make any payments – but these situations are not common.
In Shaun’s case, he must make surplus income payments of $725 per month. Because he is a first-time bankrupt with surplus income, Shaun must make these payments for 21 months. This means he will be out of debt far earlier than his target of five years. He will have repaid $15,225 in total.
- Monthly repayment = $725
- Total repayment = $15,225
Finally, Shaun might consider filing a consumer proposal. Under this, Shaun agrees to repay a set amount of the debt to his creditors. The repayment will be spread over five years, reducing the monthly repayments even further. How much you pay is based upon what you can afford and what discount on the debt can be negotiated with your creditors.
Typically, creditors would want to receive more than they would were you to file for bankruptcy. Often, they will accept a figure of around 30% of the debt owed. All situations are unique, and what you would pay depends upon your own circumstances. In Shaun’s case, a repayment amount of around $270 per month could likely be negotiated. Shaun would make these payments for five years.
- Monthly repayment = $270
- Total repayment = $16,200
Improve Your Cash Flow as You Become Debt Free
If you don’t improve your cash flow, getting out of debt can be impossible. However, as you now know, there are solutions available. A consumer proposal could cut your costs substantially. This could improve your cash flow and let you start enjoying your life again, while your target of being debt-free comes sharply into focus.
For most people, a consumer proposal is the most sensible option to tackle their debt and cash flow problems. It reduces and caps the debt you owe and improves your cash flow. If you would like to explore your options and learn more about how Adamson & Associates can help, contact us for a free, no-obligation consultation.
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