Debt consolidation in Cambridge? (part two)

Looking at Debt consolidation in Cambridge? 

Part one of this blog explores ways of consolidating debts in Cambridge such as looking at your own available credit, turning to banks, credit unions, lenders and mortgage brokers.  All have pro’s and con’s you need to be mindful of, but what happens when you’re maxed out on your credit and you don’t qualify for consolidation services offered by banks/lenders and/or you don’t have an asset such as a house to give as collateral?

Part two of this blog will explore other ways of consolidating debt.

Credit counselling:

mosaic logo Not-for-profit credit counselors can consolidate debts through debt management plans.  The basic concept of a debt management plan is that you repay your unsecured debt in full over a four year period without any interest being added.  the accounts are frozen on the day you start the plan and you pay back the balances over the 4 years safe in the knowledge that no further interest will be added so you essentially pay down the principle debt as opposed to just spinning wheels making minimum payments that barely cover the interest charges.   It’s not too difficult to work out your payment each month on a debt management plan – if you currently owe $30,000 you’ll repay around $625 per month for 48 months.  If that payment is less than what your current combined minimum payments are, then that would be a way of consolidating debts into one new lower payment.  The nearest registered not-for profit credit counselling company that provides this service for Cambridge residents is the Mosaic Family Counselling service based in Kitchener.

Debt consultants (or for profit credit counsellors):

Debt consultants that offer debt settlement services claim to be able to help you consolidate your debts by signing you up to one of their debt settlement programs.  Debt consultants are not licensed by the government to offer government programs that are designed to help you reduce your debts, but will attempt to negotiate an informal settlement offer between you and the creditors.

An example of this type of service would be this; if you have $30,000 of unsecured debt, they’ll attempt to negotiate it down with the creditors to what they typically claim would be about a third (ie, $10,000).  They’ll ask you for the $10,000 so they can begin negotiating – almost anyone i know that’s in financial difficulty won’t have $10,000 kicking around… so therefore they’ll ask you to stop paying your creditors and start paying money into a ‘savings’ account so that they can begin negotiating with the creditors once you have the money – they might suggest you save over a two year period, so therefore $10,000 over 24 months would be roughly $420 per month, however they’ll add their service fees to it so the payment will be much higher and the service fees will be front loaded.   Great, if the creditors accept, you reduced your debt of $30,000 to $10,000 plus the service fees.

One potential problem with this strategy, is most creditors I know are not going to wait two years whilst you don’t pay them and save up money… After a few months the creditors will call you demanding payments, threatening legal action and your credit rating takes a nose dive.   The response from your debt settlement company (if you can get hold of them) might be to “stick with the plan…”.  If you’re facing legal action and you want to cancel the program and get your money back, you’ll then realize that the fees they charged you were front loaded so you’re not really entitled to much of any kind of refund.  “Fee for what?” I hear you cry…

Consumer Proposal:

You can consolidate debts by offering your creditors a Consumer Proposal. consumer-proposal  Unlike debt settlements done through debt consulting companies, the deal offered to the creditors and it’s acceptance is made at the start (not the end).  Oh, and it also happens to be federal law and can only be filed for you by a licensed trustee that’s an administrator of consumer proposals.

Before filing a consumer proposal a trustee will make sure you’ve considered all the above options first.  This is important because as consumer proposal is often perceived as the last option before bankruptcy, so we’ll want to  make sure all other options have been carefully considered.

With a consumer proposal, you may be able to offer the creditors a $10,000 settlement on $30,000 debt before you start paying anything.  A proposal is automatically accepted with those terms unless the majority of your creditors request an increase in your offer within the first 45 days of when the proposal was filed.  If they don’t request an increase within 45 days, it’s accepted with the terms you offered and is legally binding on all your unsecured creditors.  It’s rare for proposal to not be accepted as the trustee will work with you to ensure what you’re offering to the creditors in the proposal will provide them a greater benefit than they’d receive if you were to file a bankruptcy (as much as you don’t want to file a bankruptcy, the creditors probably don’t want you to either).

Also with a consumer proposal:

  • You keep control of all your assets
  • You avoid the stigma of bankruptcy
  • Your credit rating is not rated as bad as a bankruptcy would be
  • You pay $0 interest in a proposal
  • The trustee is paid from the proposal too if it is accepted, so there’s no up front fees or hidden costs.
  • You’re legally protected from creditors, so they cannot commence or continue to collect a debt from you, call you, take legal action against you.

As mentioned before, it’s important to fully consider all your options when it comes to consolidating debts, so feel free to contact me for a free consultation by emailing me or calling my office at (519) 622 3773.

Howard has worked in our Cambridge office for many years helping Cambridge residents find solutions for debt problems. As a licensed trustee in bankruptcy Howard is able to explain all your options and find a solution that works for you.

Howard Hayes – who has written posts on Bankruptcy Cambridge: The Insider's View from Howard Hayes.

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