It’s normal to have some debt, whether it’s a mortgage or a car payment, but if you’re waist-deep in credit card and finance company loans and are seeing the debts being carried over month to month without going down, this is understandably frustrating and stressful.  When this happens, it’s important to seek advice from a credible source to help you find a solution.

Our team at Frederick & Company Ltd. can help you understand your options and find a solution that works for your unique situation. As a Licensed Insolvency Trustee whose values are to empower and educate those who seek our help, we take pride in helping anyone concerned with their financial well-being.

If you’re ready to take on your debt and move forward with your financial goals, we’re here to help walk you through your options, including the information listed below.

How to Pay Off Debts in Collections

If a creditor has sent your debt to a collections agency or law office, you have different options to address this.

Payment Plan

You can contact the collections agency directly and propose a payment plan that works for your budget.

Keep in mind, however, that missing any payments can derail the plan and the collection agency will have the right to negatively report missed payments on your credit score so be sure to pick a payment that you can manage month in and month out.

Even if creditors could end up with more through lump sum payments they do not like to only receive funds intermittently. They prefer steady predictable payments each and every month. And it is these steady, predictable payments that help to rebuild your credit as well.

If they agree, they will send a document outlining the proposed payment agreement. If you do not receive a document from the collection agency any payments made prior to having the agreement drawn up will not count towards this agreement. Be sure to keep detailed records of correspondence and payments in case of future disputes.

Consider Your Overall Debt Load

Prior to making a settlement with one creditor, it is important to review all your creditors to ensure that making this settlement is going to move you from financial distress to financial success.

If you have 5 creditors and you will need to make an individual settlement with each of these creditors. If you can not resolve your overall credit difficulties with informal settlements it may be advisable to find a different solution, such as bankruptcy or a consumer proposal, which will resolve all your unsecured debts through one process.

Settlement Offer – Lump Sum or Payment Plan

When you negotiate a settlement with a collections agency, you can pay off a portion of what you originally owed.

Most collection agencies will be more likely to accept a lump sum settlement rather than a payment plan settlement, but there’s no harm in discussing this option with them.

If you have a chunk of money in savings or have received a tax refund or inheritance, or if friends or family are able to help you, you may be able to pay off the full debt with a lump sum settlement and be done with the collection agency.

Just be sure that this option suits your financial situation and that this agreement is in writing before proceeding. You don’t want to be in a situation where you can’t afford an emergency vehicle repair or a missed rent or mortgage payment because you have liquidated your emergency savings to pay off a collection agency.

It can be difficult to make a deal with collection agencies, and it requires a lot of patience and time to do so.

Alternatively, you can hire a debt consultant to help negotiate on your behalf. You should treat this as if you were hiring a lawyer – do some research to find a suitable and credible individual to assist you. Some companies charge an upfront fee and others only charge a fee if they successfully negotiate the debt reduction.

You do have additional options you can explore by speaking with a Licensed Insolvency Trustee, and we would actually encourage you to book a consult with one before negotiating with your creditors.

How To Pay Off Debts with a Consumer Proposal

A consumer proposal is a formal debt-relief option available in Canada that is administered by Licensed Insolvency Trustees. A consumer proposal allows you to make predictable and affordable payments to settle your unsecured debts.  Unlike many other options where what you pay is based on what you owe a consumer proposal payment relates more to how much you can pay and allows you to set the terms of how you pay it.

Consumer proposals must offer a better advantage to creditors than bankruptcy provides. Usually, this means that a consumer proposal offers more money to creditors or it could mean that the consumer proposal is done quickly providing creditors with a quicker resolution than bankruptcy would provide.

The Trustee will review the assets, debts, and income of the debtor to determine what the creditors would be likely to receive in a bankruptcy – please see our blog on how bankruptcy payments are calculated – when preparing a consumer proposal for your creditors.

A consumer proposal will allow you to make monthly payments, a lump sum payment, and varied terms that allows you to craft the terms of the proposal specifically around your unique financial situation making it more likely that you can successfully complete the proposal.

For example, if you have seasonal work where you make considerably more in the summer and considerably less in the winter then you may want to have smaller payments in the winter when you don’t have the ability to pay as much and likewise increase your payments in the summer when your finances are flush with cash.

To explore this option, you must speak with a Licensed Insolvency Trustee who will work with you to take stock of your circumstances and help you determine if a consumer proposal is the best for your given situation.

Please be aware that if someone advertises themselves as providing consumer proposals they will show up on this Government of Canada directory for Licensed Insolvency Trustees. If they do not appear on this list you are likely talking to a debt consultant who will likely charge you a fee for service.

If you wish to move forward with a proposal, the Trustee will work with you to gather information relating to your assets, liabilities, assets, and transactions that you’ve recently made. After the consumer proposal documentation is signed the Trustee will file that documentation to Industry Canada (a government agency) and they will provide a certificate of appointment which officially starts the proposal process.

Filing a consumer proposal offers you the same protection from creditors as in bankruptcy, namely a stay of proceedings, that stays creditors from calling or sending you collections notices, garnishing your wages, legal action, and interest accrual.

Your unsecured creditors will be given the opportunity to vote on your proposal and if greater 50% of voting creditors – each creditor gets a vote for every dollar owed to them – then the proposal will be binding on 100% of all creditors. This means those creditors that may have voted against the proposal still must follow the proposed rules if the majority of creditors have accepted the terms of the proposal.

If creditors vote against the proposal it is typically because they want to negotiate and have you pay additional funds in the proposal. In a proposal, you have the autonomy to accept or reject the suggested terms.

You and your creditors likely will be searching for a compromise that finds a middle ground between both parties that provides a more lucrative option than bankruptcy but keeps the proposal payments at an amount that the debtor can manage monthly for an extended period of time. At Frederick & Company Ltd we have been successful with the vast majority of the proposals filed with our firm.

If the consumer proposal is accepted then you are responsible for making the proposed payments on time and attending two required financial sessions.

Once your payments are made and you’ve attended those required financial discussions, your pre-proposal unsecured debts are paid off and they should be reflected as such in your credit report as being paid off in a consumer proposal.

How to Pay Off Debts With a Consolidation Loan

Another option available to pay off debts on a credit report is a consolidation loan, which is useful if you are juggling multiple payments and finding it hard to keep track of them.

A consolidation loan will combine your debts into one payment to help you manage and organize your finances.

When you are in debt and struggling, one thing people sometimes reach for is more debt to relieve them of the situation they are in. More debt means more payments and if you are struggling with your monthly expenses or your debt repayment then more debt will only make your situation worse.

That is why when you consolidate your debt into one loan it is really important to cancel all the debts that are now covered by the consolidation loan so you keep your debt manageable.

When evaluating your eligibility for a consolidation loan, lenders will look at factors such as your credit card balances, credit report, and current income.

You can also benefit from lower interest rates when you consolidate your loans, but be careful that you are not simply swapping multiple high-interest loans for a combined loan with the same or higher interest rate.

To determine if a consolidation loan is right for you speak with a Licensed Insolvency Trustee. A Trustee will review all your options with you to ensure you understand all your options so you can make an empowered decision to move you from Financial Distress to Financial Success.

They will look at your financial situation and help determine if you can afford this type of loan versus other financial solutions.

Consolidation loans work differently than consumer proposals since you are paying off the total amount of your debts.

However, because you are paying off your debts and replacing them with a new loan, there is no negative impact on your credit score.

How to Pay Off Debts With Bankruptcy

As a last resort, you can always consider bankruptcy to pay off debts on your credit report.

Bankruptcy is a legal process that clears your debts and gives you a fresh financial start by balancing your interests as a debtor and the interests of your creditors. This is accomplished by determining how much you are able to pay and what non-exempt assets you have.

This course of action is favorable for those who cannot pay the entirety of their debt.

When filing for bankruptcy, you should consider what assets are exempt and which are not. Exempt assets allow you to maintain a reasonable living standard, while non-exempt assets are vested with a Trustee, and they can be sold for the benefit of your creditors.

Going into bankruptcy doesn’t mean you have to surrender all of your non-exempt assets, but you do have to pay their value to the estate.

Speaking to a Licensed Insolvency Trustee is the best way to determine if bankruptcy is right for you and understand which assets will be affected during the process.

Working Towards Financial Freedom

When it comes to dealing with your debts, you have options! You can live your life not stressing over your next debt payment or falling credit score.

To get started, contact our team at Frederick & Company Ltd. We can help you find a solution that fits your goals and priorities to improve your financial situation.