Many people believe that when their debt gets out of control they have one option: bankruptcy. But, depending on your specific financial situation, there are other debt management solutions available. Some strategies for getting out of debt you may even be able to handle yourself—with discipline. Of course, with so many solutions to consider, it can be hard to know which is right for you—meet with a Grant Thornton debt professional for help in settling on the best course of action.
Do-it-yourself debt management
Review your debt
Before you can make a plan to manage your debt going forward, you should understand how much debt you have and how long it will take to pay down. High-interest debt should be the first to go, but if there is a small debt that can provide you with an early win, then that may be the best route. Consider these 5 steps to take control of your finances including reviewing your debt.
Start a budget
If you don’t feel you have a good understanding of your finances, create a household budget, and then follow it, to manage your monthly expenses. Be sure to include line items for savings and debt repayment.
You can explore this three-step guide to build a basic budget and use the worksheet to track your progress each month.
Manage your debt with a debt consolidation loan
If you have multiple debts at multiple (and high) interest rates, one strategy for saving money and simplifying your life is to consolidate your debts. Combine and pay off multiple debts and loans through a single payment at the lowest interest rate, often a line of credit.
Informal debt settlement
Present your creditors with a plan outlining how you can pay them back. Creditors will often negotiate with you, as their goal is to obtain the money that is owed to them. Explain your financial situation honestly, and submit a realistic proposal and payment schedule.
Formal debt management control
A credit counselling agency can help you learn to manage your money, handle your debt, and create a budget. Note, however, that a credit counsellor cannot help you with everything a Grant Thornton trustee can—like consumer proposals and bankruptcies.
Debt management plan
A debt management plan is an agreement between you and your creditors to reduce your debt payments. Note that a debt management plan does not offer the same benefits as a consumer proposal and you will have to pay back everything you owe.
Orderly payment of debt
This debt management option is also called a Consolidation Order. The court consolidates your loans, and you pay an administrator who pays your unsecured creditors the full amount owed on your behalf, with interest. This option is offered only by government-approved institutions and is not available in every province.
A consumer proposal is a proposal made between you and your creditors that usually involves you repaying only a portion of the debt you owe. You will be protected from harassing phone calls from creditors, and all legal action taken against you—like a lien on your home or a wage garnishment—stops immediately (statutory liens from the Canadian Revenue Agency are an exception). Only a Licensed Insolvency Trustee can administer a consumer proposal. Learn more about how to file a consumer proposal.
Filing for bankruptcy
Bankruptcy releases you from the majority of your debts, which means you will not have to pay them back. Like a consumer proposal, bankruptcy also immediately stops all legal action against you and can only be administered by a Licensed Insolvency Trustee. For some people, it’s the most efficient way to regain financial stability. We consider bankruptcy, however, only after we explore other options first. Find more information on how to file for bankruptcy.
You don’t have to manage your debt alone
Every person’s situation is unique, so meet with a Grant Thornton debt professional for advice about what debt solution is best for you. Your trustee will offer practical information and options that will help you to get control of your debt, and your initial consultation is free.