Archive for Category 'Debt Management Plan'

Question: Recently my husband and I applied for a second mortgage to pay off bills and were declined..within the past year he lost his job was on EI maxed out EI and had no income coming in and our credit cards fell behind..he recently got a new job but our credit cards are behind..I was looking at a debt management plan..I am wondering if since the credit cards are not joint (except 1)and he is in worse shape (4 months behind) if he should just do it and if I should try to bargin with the credit card companies so I could stay out of a debt management plan (I’m 2-3 months behind in my payments) ..I was thinking if one of us had decent credit it would be easier? Also the one joint credit card: would it be wise to keep it out of the proposal or would it hurt my credit alot to have 1 credit card in the proposal and the rest not??

Answer: You are asking about two different procedures: A debt management plan and a consumer proposal.  In a debt management plan all of your debts are repaid in full; in a consumer proposal the creditors will often accept less than full payment.  Both procedures have the same impact on your credit report.

In general, if it’s possible for you to repay all of your debts in full, then it would be better for you to not file a consumer proposal or debt management plan.  However, if you are already two or three months behind in your payments, it’s likely that your credit is already damaged, so preserving your credit may not be your biggest priority at the moment.

It may be better for both of you to deal with all of your debts now, and then begin rebuilding your credit once your debts have been dealt with.  We suggest you contact a credit counsellor or a trustee that administers proposals to review your options in more detail.

Question: I can’t find anyone who can offer me a unsecured debt consolidation loan. Banks have said NO …. Wells Fargo said NO … Citifinancial said NO. Where do I go now ?

Answer: With the credit crisis it has become increasingly difficult to qualify for a debt consolidation loan.  If everyone is saying no, you have the following choices:

First, you could simply not get a consolidation loan.  Cut your expenses and pay down your debt on your own.  In today’s world that is often the best solution.

Second, you could pay your debts on your own, and then try again in six months.  It may be that six months from now your debts are a bit lower, and your credit score may be a bit higher because you have lived at the same place, and been at the same job, for six more months, so you may qualify.

Third, instead of a debt consolidation loan you could try a debt management plan, which is like a debt consolidation loan, but there is no interest.  A not for profit credit counsellor can negotiate a repayment plan where you pay the debts in full, but at a reduced interest rate.

If you can’t afford to repay your debts in full, the next option is a consumer proposal, where a licensed proposal administrator works out a plan where you repay a portion of your debts.

If all else fails, the final option is personal bankruptcy.

The point here is that just because the bank says no, you don’t have to give up.  There are other options.  To find out more, check out our free Debt Options Calculator to see the cost of the different options.

Question: Does credit counselling affect your credit rating? If so how? I still have a decent rating but does it have to drop before I qualify? I’m looking for solutions before it gets to that but I can’t do it by myself.

Answer: Yes, a debt management plan (credit counselling) does affect your credit rating.   According to Equifax, Canada’s largest credit reporting agency, credit counselling remains on your credit report for three years after all payments are finished.

Your credit rating does not have to drop before you qualify.  You can apply for credit counselling at any time.  We suggest you read our article on how to deal with your money problems for full information.

Question: I do not want to claim bankruptcy. I have about $25,000 debt, credit cards, loans etc. still good credit. been doing all my min payments. Don’t have a job. min payments are about all I can do. Am not getting anywhere with my debt. Will remain in debt forever if i don’t get help. Can anything be done?

Answer:  You have a few options.

First, you could continue doing exactly what you are doing until you find a job.  You make your minimum payments to keep your rating positive, and then when you are back to work you can work on paying down your debt.

Second, you could file a debt management plan with  a not for profit credit counsellor who will work out a repayment plan where you repay your debts in full, but at a low or zero rate of interest.

Third, you could file a consumer proposal where you repay a portion of your debts.

Both a debt management plan and a consumer proposal require you to have enough money each month to make payments on your debts.  If you are not working that may not be possible, so you will need to review your budget to see exactly how much you can afford each month.

Finally, as a last resort bankruptcy is an option.  If you are not working you have no wages, so your wages cannot be garnisheed, so bankruptcy is not necessary to prevent a wage garnishment.  However, you may decide that it is better to deal with your debts now, so that when you return to work you do not have the stress of the debts.

We suggest you consult a licensed bankruptcy trustee to review your options in detail, and help you decide which option is best for your.

Question: I graduate this coming April…which is great…but also brings on reality where I must begin my debt repayment.

I was as worried before, but with the current state of our economy, I am really beginning to get worried!

My debt is approximately as follows:

Student loan: $20,000
Line of Credit: $15,000
Vehicle: $20,000

Being in the position, currently, not knowing what pay rate I will be getting when I get a job upon graduation….

Is there anything I could do now to start planning how I can pay off my debt as quick as I can?

Answer:  You ask and excellent question, and it is good to see that you are being pro-active in dealing with your situation.  Ultimately, until you know what pay rate you will earn at your new job, it is difficult to accurately plan your future.  However, there are some steps you can take.

First, you should make a household budget so that you can see exactly where you spend money each month.   By starting the budgeting process now, you will have a head start once you are working. You should also read our budgeting tips article for more information.

Next, you should understand all of your options, including a debt management plan, consumer proposal and bankruptcy.  If you get a good job none of those strategies may be necessary, but you should understand them now in the event that they do become necessary in the future.

Finally, based on this research, you may want to have a meeting with a credit counsellor or bankruptcy trustee to review your options in detail, so that once you are working you already understand your options.

Question: I have a card that is holding a balance of $7000 and the limit is $6500. The huge mistake that I made was taking out quite a few cash advances while first daughter was being born and the expenses in her first year.

What I did not realize was the extra interest on cash advances.

Steps taken were scissors to the card.

Now we just cant seem to get the balance back to its normal payment. Made a $500 payment (minimum was $190) and the next statement showed a $2 increase in the balance after interest added.

We can only afford $300 payments which will help if we can get back to the $190 minimum.

Our mortgage is up for renewal and we considered trying to consolidate this CC into our mortgage but not sure if that helps.

Any advice?

Answer: You have a few options.  The first option would be to call the credit card company and ask if they can reduce the interest rate, or convert the card into a loan with a reasonable interest rate and payments of $300 per month.  They probably won’t want to trade a high interest credit card for a lower interest loan, but it’s worth a try.

Next, you could do as you suggest and increase your mortgage when you renew by the amount necessary to repay the credit card.  If there is sufficient equity in your mortgage and you can afford the mortgage payments, this option makes sense.

If that isn’t possible, you could try a debt management plan through a credit counsellor. If all else fails, a consumer proposal or a bankruptcy may be necessary to deal with your debts, but because you own a house those options should not be considered until you have discussed your situation with a licensed trustee.

Question: is bankrupcy right for everyone ?

Answer:  No.

If you have more debt than you can handle, bankruptcy may be an option, but it is the last option you should consider.  There are many bankruptcy alternatives, and you should consider all of them before deciding to file bankruptcy.

Start by making a personal budget to see if you can cut expenses and use the extra cash to repay your debts.   On this site we offer a free trial of budgeting software to make the job very easy.

Your next option is to consider a debt consolidation loan, where you borrow at a lower interest rate to repay your high interest rate debts (like credit cards and payday loans).

If you don’t qualify for a debt consolidation loan, a credit counsellor may be able to help you file a debt management plan where you get extended time, and lower interest, to repay your debts.

If that’s too expensive, a consumer proposal is a way for many Canadians to make a legal settlement on their debts for less than the full amount owing.  (In the United States, you can consider a Chapter 13 Wage Earner Plan).

Only after you have tried all of these options should you consider personal bankruptcy.

Question: I share workspace with 4 other people. We work shift-work and only one of us is there at any given time.

Two of my co-workers are receiving collection calls at work every week. They are unwilling or unable to stop these calls.

Is there anything I can do to stop these calls?

Thanks for any help you can give.

Answer: The short answer is no, there is nothing you can do to stop the calls, since they have nothing to do with you.  I would suggest the following:

First, when the calls come in, you should simply advise the caller that the person they are looking for is not in the office at the moment, and then hang up.

The better solution is to help your co-workers to actually deal with their money problems.  That may be through working out their problems on their own, or talking to a credit counsellor about a debt management plan, or filing a consumer proposal or a bankruptcy.  However, the decision is there’s not yours, so all you can do is provide them with information on their alternatives, and hopefully they will take action to deal with their problems.

Question: A collection agency  purchased my debt from the bank. This debt is from 1999. I had a Line of Credit and 2 credit cards with them. I fell into bad times and when I tried to get it consolidated to a straight loan with the bank they said no and immediately started to remove my paycheque from my account as soon as my work deposited it. They did this twice until I had my work issue my pay as a cheque. Suffice it to say at the time I did not have a support network. No family or close friends that could help. I therefore just disappeared off the map so to speak. I slowly paid off my smaller debts. In addition at that time if your credit rating was bad a Bank could decline opening a bank account. I spent from 1999 until about 2006 without a bank account. Anyway, my question is what normally does a collection agency pay on the dollar to the bank to buy my debt. I have been told they pay 10 cents on the dollar. If that is the case what are my options when negotiating with this agency?

Thanks,

Hector

Answer: It would be highly unusual for a collection agency to purchase your debt from the bank.   Collection agencies collect debts on behalf of banks, but they don’t use their own money to purchase the debt.  If they manage to collect something, they get a percentage of the amount collected.

You have a number of options for dealing with the collection agency.

First, you can attempt to negotiate payment arrangements.  Since the debt dates back to 1999, the collection agency may be willing to accept payments over a period of time.

Second, you could offer a lump sum settlement.  If you owe $5,000, you could offer to give the collection agency $2,500 in full satisfaction of the debt.  They will often accept this type of settlement.  However, to be able to do this you would need to have $2,500 in cash, which may be difficult to borrow if your credit rating is poor.

Finally, if you cannot reach a settlement with the collection agency yourself, you could get help from other professionals.  A Debt Management Plan filed by a non-profit credit counsellor could be used, or you could file a consumer proposal or personal bankruptcy to deal with your debt. 

Question: I had managed to stay out of debt for nearly 40 years, but in the last 3 years I have accumulated $15,000 in debt. (went back to school) $5000 of that is credit card and $10,000 is a line of credit – both to the same bank. I make the minimum payments, however, it seems that my monthly minimum payments have been slowly increasing each month. I work permanent part time and am not managing to pay off the principle. Before I read this blog and new anything about debt repayment I phoned my bank. I asked if I could have my interest payments lowered. They said no flat out. Then I asked if there was some kind of fixed payment plan where I could consolidate my debt into one payment. I was informed that there was, but in order to qualify I would have to pay $325 monthly for 5 years. (totalling of course $19,500) But, they said that because my income to debt ratio is so high they wouldn’t feel comfortable doing that. My income is about $24,000 a year. I have no assets – no house, no rrsp’s a car worth about $1000, old used furniture and my clothes. What do you think is my best option?

Answer: If your income is $24,000 per year before taxes, it will be difficult to repay your debts in a reasonable period time.  We suggest the following approach:

First, make a budget to see exactly what you can afford to repay.  If you can afford to repay the debt, a debt management plan through a non-profit credit counsellor may be a viable option.

If you can afford to repay some of the debt, but not all of it, a consumer proposal may be a good option; for a consumer proposal, contact a trustee.

If none of those options work, the final option may be personal bankruptcy.  Again, contact a trustee for more information.

Either way, your money problems won’t go away on their own, so the sooner you take action, the sooner you will be able to get a fresh start.