Getting help with your debt

You have several options if you decide to get help from a third party to get out of debt. The option you choose will depend on your level of debt and how much money you can manage to put toward debt repayment.

What is a debt consolidation loan?

A debt consolidation loan is a single loan that allows you to pay off most or all of your creditors at the same time, leaving you with only one outstanding loan. This type of loan may also offer you an interest rate that is lower than what you are currently paying to your creditors, reducing your overall interest costs. Speak to your financial institution to see if this is an option for you.

Tip: If you set up a debt consolidation loan, be careful not to use the available credit you just freed up. Remember, if you choose to consolidate, your debt is not gone, it is just combined into one larger debt.

What is credit counselling?

Credit counselling services are widely available. One of the most common services they offer is help with finding the best strategy to pay off your debt through a debt management program.

Contact a local family or community counselling office or a credit counselling association to find out how to get in touch with such a service and what fees you may have to pay. For more information, read FCAC’s tip sheet Managing debt: Getting help from a credit counselling agency.

What is debt settlement?

Debt settlement companies offer to negotiate with your creditors in an attempt to reduce your total amount of debt. If an agreement is reached, the debt settlement company sends your payments to your creditors. 

There are many different names for the practice of debt settlement, including: debt arbitration, debt negotiation, debt relief, debt pooling, debt reduction and debt elimination.

Most debt settlement companies focus on reducing your debt and making payments. They do not always provide credit counselling or budgeting and money management advice. They are usually for-profit businesses that make money from fees.

What to watch out for when considering a debt settlement company

High-pressure sales tactics

Some debt settlement companies offer their services through aggressive telemarketing calls. If you get a call, don’t feel pressured to agree to something right away.

Unrealistic promises

Be aware that some debt settlement companies promote their services in a misleading way and make unrealistic promises about what they can provide to you. Examples of these promises can include reducing your debts by a large percentage (such as 60% or even more), or helping you pay off your debts quickly and easily just by paying a low fee.

Misleading guarantees

Some debt settlement companies claim certain guarantees which may not be possible. Examples include stating that your creditors will always agree to participate in debt settlement negotiations, or that they can prevent creditors and collection agencies from putting a stop to wage garnishments and legal actions.

There is nothing that forces your creditors to participate in debt negotiations – it is totally up to them. Some or all of your creditors may not to agree to lower your amount of debt or even work with the company.

High fees

Fees charged by debt settlement companies can be very high. These can include upfront or advance fees and ongoing monthly fees. If the company is unable to get creditors to reduce your debt, you will likely still need to pay the upfront or advance fee.

Delaying your payments

Some debt settlement companies intentionally delay making payments to your creditors in the hopes of getting better results in negotiations to reduce your debts. This will hurt your credit rating.

What you can do to protect yourself

Do a background check. Research the debt settlement company to see if it is trustworthy and reputable. Check with your provincial or territorial government office that handles consumer affairs as well as the Better Business Bureau.

Don’t agree to anything under pressure. High-pressure sales tactics create a difficult environment to make clear decisions. If you feel that you’re under pressure to sign something, walk away.

Know what’s happening with your creditors. A company may offer to handle all communications with your creditors. They may ask you to sign a power of attorney to give them this ability. Doing so means you won’t know if there are any problems between the company and your creditors. For example, you wouldn’t be aware if the company is making late payments or no payments at all to your creditors.

What are Consumer and Division I proposals? 

A consumer proposal is a formal procedure set out in the Bankruptcy and Insolvency Act. For a consumer proposal to be an option, your total debt cannot exceed $250,000, not including debts secured by your principal residence.

With a consumer proposal, you work with a licensed insolvency trustee (also known as a bankruptcy trustee). A trustee is a person licensed by the Superintendent of Bankruptcy to administer bankruptcy and proposal estates. They help put together an offer to pay your creditors a percentage of what you owe them over a specific period of time (up to five years). Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. 

A Division I proposal is similar to a consumer proposal except that it is available to both businesses and individuals, is a more complex process, and there is no limit on the total debt.

For more detailed information, check out the Office of the Superintendent of Bankruptcy’s sections on consumer and Division I proposals. 

What is bankruptcy?

If you have tried everything else, you may have to consider bankruptcy. It is a formal procedure set out in by the Bankruptcy and Insolvency Act. Be aware, bankruptcy can have a long lasting effect on your credit history and credit score.

With bankruptcy, you sign all of your assets, except those exempt by law, over to a licensed insolvency trustee who will sell or use them in order to pay your creditors. Not all debts are discharged through bankruptcy, including student loans if you graduated less than seven years ago, alimony payments, child support payments, a fine or a penalty imposed by the courts, and debt arising from fraud.

The Office of the Superintendent of Bankruptcy Canada has additional information on alternatives to bankruptcy and how to file for bankruptcy.

What is the Office of the Superintendent of Bankruptcy?

The Office of the Superintendent of Bankruptcy makes the bankruptcy and insolvency process easier to understand for debtors (those who owe money) and creditors (those who are owed money), and provides them with the information they need to best manage their situations.

The Office of the Superintendent of Bankruptcy has several resources for debtors, including a publication called Dealing with Debt: A Consumer’s Guide. ​

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