LORI ASKED: Can I consolidate all my credit card debt into one LOW monthly payment without filing for bankruptcy?
ANSWER: There are three ways to “consolidate” all of your personal credit card debts into one low monthly payment:
Consolidation Loan
Debt Management Plan
Consumer Proposal
Each of these options has advantages and disadvantages. To see how much each of these options might cost you check out our Debt Options Calculator.
Consolidation loans are a popular option for people that are trying to reduce their debt payments. The main advantage of consolidation loans is that they don’t affect your credit rating. The main disadvantages of consolidation loans are that if you don’t have an excellent credit rating you probably will not qualify, the payments are much higher than the other “debt consolidation options” listed below, and consolidation loans still charge interest.
A debt management plan (DMP) can be a good option for some people. DMP’s are administered by credit counsellors not trustees in bankruptcy. The main advantage of a DMP is that it will reduce or eliminate interest charges. The main disadvantages of DMP’s are; not all creditors can be included, interest is not always eliminated completely, you are required to pay back 100% of the total amount you owe plus an administrative fee and your credit rating is damaged the same as if you filed a consumer proposal.
A consumer proposal is formal debt settlement option filed with a licensed trustee in bankruptcy. The main advantages of consumer proposals are; all creditors can be included, all interest charges are stopped, creditors are prevented from taking any legal or collection action (including wage garnishment) and you pay back less than the total amount you owe. The only disadvantage of filing a consumer proposal is that it results in a R7 credit rating which remains on your credit bureau report for 3 years after your proposal is paid in full. Deciding which personal debt consolidation option is best for you depends on your individual situation.
To review these options in more detail I would recommend arranging a free initial consultation with me or with one of the other licensed trustees at Welker & Associates.
