Canada Debt Relief: When Informal Proposals Can Work against Debts

Everyone is at risk of sinking into too much debt, even those who regularly earn a sizable sum. From real estate, student loans, to credit cards, there are a lot of financial liabilities that could have a negative effect on your credit rating and overall quality of life. With the help of debt relief experts, you may be able to rebuild your finances while slowly yet gradually repaying your current debts.

How Much is Too Much?

Let’s say that there are two people with seemingly different amounts of debt: a woman making over $100,000 a year has an outstanding mortgage reaching $164,000 and a man earning only $25,000 year and owing over $41,000 on credit cards. When you look at both of them closely, however, they both have a debt-to-income ratio of 164%, making both of their debts almost the same though in different forms. The general rule is to have your debt load not exceeding more than 40 per cent of your pre-tax income, and this includes housing costs, credit card payments, and car loans.

In the last few years, a considerable number of Canadians have been borrowing more money so they could pay for exorbitant interest rates on credit cards and household debts. If this trend of people relying on their credit cards continue, the whole country will see over 10,000 consumers going bankrupt in just a month. In fact, 2013 alone saw 118,678 cases of consumer insolvencies.

The Basics of an Informal Proposal

An informal proposal, otherwise known as a debt management plan or program, means you’re undergoing a voluntary program wherein some of your unsecured debts may be consolidated, thereby enabling you to make a single monthly payment to your debt counselors who will, in turn, forward them to your creditors. For example, if you owe a total of $24,000 on your credit card, under the debt management plan, you are expected to make a monthly payment of $500 for 48 months until your debt is fully repaid.

You have to remember that debt management plans will work only if you’re dealing with commercial lenders, such as banks and large financial companies, and you can promise that you’ll be able to settle the required payments as laid out in the agreement. If you feel that you’re sinking in debt, mainly due to rising interest rates, debt management plan or an informal proposal is definitely a good idea.

Finally, for effective debt relief in Canada, you’ll have to entrust the drafting and repayment of your debts through an informal proposal or a debt management plan with the guidance of a reliable debt relief consultant like Blair Greenwood of 4 Pillars Debt Consolidation & Credit Rebuilding for Victoria, BC.

Sources:

When Does A Debt Management Plan Work?, Bankruptcy Canada

Before you sound the debt alarm, know how much you have, Financial Post