Debt settlements, payday loans, consumer proposals, bankruptcy … there are many different debt solutions being advertised these days. It can be confusing to say the least. In reality, there are three basic ways for you to take control of your debt.
Do it yourself
There are a number of strategies you can use to deal with debt on your own. Especially if your financial challenges are not as serious.
• Revise your budget and create a repayment plan. Often you can cut out discretionary spending such as premium cable packages, cellphone extras and extraneous entertainment expenses.
• If it’s feasible, find a second job to increase your income.
• Contact your creditors and work with them to revise your payment plans.
• Options such as debt consolidations loans, payday loans, refinancing your mortgage or borrowing from friends/family need to be considered very carefully. In many ways, they don’t offer real solutions, they simply shift who you owe money to.
These are called "informal" because they are not legally binding. Informal solutions are often arranged by someone like a credit counsellor, debt consultant or debt settlement company. These providers will review your situation and contact the creditors you owe money to. They will negotiate a repayment plan and possibly a reduction in the amount you will have to pay back.
It is important to do your homework when considering these solutions. Will interest charges still be applied? What fees are involved? How and when will the debts be paid? Will this put a stop to collection agencies or creditors from calling?
Formal, legally binding solutions
If your financial challenges are more serious and you’re receiving calls from collection agencies, having a portion of your wages seized by creditors, or at the end of your rope and unable to make ends meet, a formal solution may be your best option to help relieve your financial stress. Formal solutions are legally binding. They provide the best legal protection from creditors, can stop wage garnishments and help you erase your debt once and for all.
Formal solutions, such as a consumer proposal, which is a legal debt settlement, or filing for bankruptcy to eliminate debt, are only available through a licensed trustee in bankruptcy.
A trustee, like myself, is licensed by the government. A trustee acts as a neutral third party who works with you and the people you owe money to, to find the best possible solution for everyone involved. I know the term "trustee in bankruptcy" can be scary, but a trustee cannot force you or convince you to file for bankruptcy. In fact, declaring bankruptcy should be a last-resort option.
Most importantly, you should investigate and learn about all your debt help options before deciding what to do about your debt. Whichever path you choose, make sure you understand the pros and cons of each option and find a solution that works for you.
» Wayne K. Palmer is a senior manager in BDO’s Brandon office. He is responsible for both the consumer and commercial practices in Brandon and surrounding areas, including Boissevain, Minnedosa, Neepawa and Dauphin. Wayne has more than 25 years experience in the financial recovery services field.
Republished from the Brandon Sun print edition October 20, 2012