Paying off your debt when it feels impossible

You’ve heard it before, but we’ll say it again: nothing is impossible. Especially not paying off your debt! We know it can be disheartening when month after month you’re struggling to make a dent, or you find yourself missing minimum payments. 

Though it can seem overwhelming and stressful at times – you’re not alone. We can help. Get out your snowsuit and prepare to tackle that snowstorm of debt one snowflake at a time! 

This article is for you if you’re someone who:

1. Struggles to make the minimum payment on your debt
2. Has problems paying your bills on time
3. Finds themselves in trouble with your creditors and collection agencies 

Steps to follow when you can’t pay back your debt (one step at a time):

1. Try consolidating your debt

Consolidating your debt means combining multiple types of debt into one. This way, you end up with one loan, one monthly payment, and a single (hopefully lower) interest rate. Think of it as a spring cleaning for your debts. It can take the following forms: adding debt to your mortgage, or getting a personal loan to pay off your other debts. 

How does debt consolidation help? Consolidating your debt can make debt feel more manageable because it gives you a set monthly payment and a clear time-horizon for becoming debt-free. Not to mention, it lets you sleep a little better at night knowing exactly what you owe and when you owe it! 

You can build this payment into your budget and move on with your life – to line dancing and parasailing, or whatever tickles your fancy! Better this than struggling to create a system that works on your own.

Something to keep in mind: getting a consolidation loan at a reasonable interest rate can be tough if you have a low credit score. But don’t fret,  it’s definitely an avenue you should consider before moving on to a consumer proposal, bankruptcy, or simply letting your debts go unpaid. 

 

2. Call your creditors to negotiate a payment plan

If you’re unable to meet your financial payments when due and can’t get a consolidation loan, the first step would be to contact your creditors to work out a new repayment plan. Consider it a fresh start! 

What you want to avoid if possible, is having the creditor give up on collecting the funds from you and instead assign it to a collection agency. Once they assign a collection agency to you, they also send notice to the credit bureaus that your account is in poor standing, which will hurt your credit score. 

When you call your creditor, first make sure the representative you are speaking to has the authority to change the interest rate or terms on your account. If they cannot,  ask to be transferred to a manager or someone who can. Next, present your situation, any hardships you’ve faced, and what you are trying to do to get back on track financially. Then propose a solution. Set yourself up for success by putting a realistic timeline in place for being debt-free. 

 

3. Speak to a not-for-profit credit counsellor

Another option is speaking to a debt professional. Not-for-profit credit counselling agencies can often give you advice on how to deal with creditors. The best part is, their wealth of knowledge is free! They’ll assess your situation and see whether they can contact creditors on your behalf. Phew, this means fewer phone calls for you! 

Sometimes, they may even be able to consolidate some of your debt if you’re unable to get a consolidation loan yourself. Try giving them a dial to see if they are able to help. Be sure to research reputable agencies, such as Consolidated Credit whom we are partnered with. If they can’t help, it’s typically because the debt load may be excessive or you do not qualify for a consolidation loan. Instead, they will likely refer you to a bankruptcy trustee to take action.  

Reaching out to a professional should set you up with the tools you need if you feel like you’re unable to deal with your debt yourself. After all, with a background in liberal arts or biology, you can’t be expected to know all of this stuff yourself! Be prepared to speak to a few people and put in some time and effort to give these professionals the information they need. It sounds like now is the perfect time to grab your favourite cup of tea, put on a face mask, and start making your calls!

 

4. Consider a consumer proposal or bankruptcy

If you’re unable to negotiate a repayment plan with your creditors, or a not-for-profit debt professional refers you to a bankruptcy trustee, it’s time to consider the options for either a consumer proposal or bankruptcy. 

Sound scary? Don’t worry, it’s not nearly as scary as your dad’s two-day-old meatloaf and it’ll get you that much closer to being debt-free.

Bankruptcy trustees are one of the few financial professionals who can help you clear your debt and negotiate a fresh start. While there are negative impacts on your credit score, it’s often a better option than trying to dig yourself out of your debt on your own.

Bankruptcy trustee, Richard Killen of Killen & Associates says that “90% of customers find the hardest part of the process is simply walking in the door. But once they do, a weight is lifted off them.”

Richard believes it’s best to rip the bandaid off early. “The first deal is always going to be the best deal – meaning that the earlier you address your debt, the better. Instead of ripping off the bandaid early, many people try and borrow their way out of debt, which simply puts them in a worse position (i.e. more debt). We can help clients actually address the problem and start fresh.”

The two options that a bankruptcy trustee will layout are a consumer proposal or bankruptcy.

“90% of customers find the hardest part of the process is simply walking in the door. But once they do, a weight is lifted off them.”

What is a consumer proposal? 

It’s a defined plan with an end date for you to become debt-free. More specifically, it’s a maximum 5-year plan that repays all (or the majority of) your debt owed. Your bankruptcy trustee will assess your situation and then create a repayment plan that is approved by both the court and creditors. Instead of paying your creditors, you will now make one payment to this trustee, who will deal with (and protect you from) your creditors.

What does it mean to declare bankruptcy?

If your debt load is excessive or key creditors refuse terms of a consumer proposal, bankruptcy will be your final alternative. Again, you’ll work with a trustee to determine if this is your best option. If it is, you’ll sign a declaration of bankruptcy document and assign your assets to the trustee. Your trustee will then set up a meeting with all your creditors to review all claims. Next, your assets will be liquidated (sold off) and funds will be distributed to your creditors. Don’t worry –  some assets are protected. In particular, assets that you need in order to live and earn a living by. 

Once all assets are sold, your trustee applies for the rest of the debts to be discharged (erased). The judge will set a discharge date, after this, your remaining debts will be erased and you are free to rebuild after this point!

Does consumer proposal ding my credit rating? 

We’ll cut to the chase – a consumer proposal will decrease your credit score and remain on your credit report for 3 years after it’s completed. A bankruptcy will remain on your credit report for up to 7 years, decreasing your credit score and your ability to receive new credit. 

When it feels like you’re at a dead end with your finances, just know, there is always more than one way out!. There are lots of options to help get you out of what feels like a never-ending game of catch up. Being aware of them is the first step,  as the information isn’t always made easy to come by. Take a deep breath, now read the following. You can do this! You’ve taken the first leap to get yourself out of debt and over the stress-mountain. 

Like what you’ve learned? Keep reading On The Money to learn all the things they forgot to teach you in Money 101 – like existing debt-free and what counts as “extra vs. necessary.”

 

Parween is an Accredited Financial Counselor. Enamoured by personal finance since she was 16, Parween is driven to make financial literacy more accessible to young millennials. If she’s not reading personal finance blogs, you’ll find her with a cake and coffee at a local bakery.