Why You Should Tackle Overwhelming Debt Sooner Than Later
Debt is a challenging issue. You can only stretch your finances so far, and while credit may be a short-term solution for you to make ends meet, it always catches you in the long run.
If you want to end your overwhelming debt problems, there is one way, and the best time to start is now.
The High Cost of Never-Ending Debt: What Does Debt Really Cost You?
The actual cost of borrowing can be daunting, all down to interest. Interest is the amount you pay for the loan opportunity. Interest is usually charged monthly, if you make a payment, the first payment covers the interest charges, and only the remaining payment will pay off the principal (the amount you originally borrowed).
To demonstrate the high cost of interest, the Canadian government compiled an example showing the cost of borrowing $300 for 14 days through a line of credit, through a cash advance on a credit card, and through a payday loan. Borrowing with a line of credit costs $5.92 and a cash advance on a credit card costs $7.65, while the payday loan costs $51.
High-interest debts can quickly exceed your repayment capacity and send you into a cycle of daily debt, unable to maximize your balance.
What Makes High Debt Levels Unsustainable?
Not only is carrying debt expensive, but there is plenty of time to make it work as well. Eventually, unexpected expenses or loss of income will destroy your ability to continue paying off debts, and that can set off a chain reaction that leads to late penalties, collection calls, or even having your utilities disconnected.
When a debt goes to collections, you can face collection calls that can feel deceptive or like harassment. Your creditors can demand payment through wage garnishment or other legal actions. All of this can affect your credit score and make it tough to qualify for a loan or even a mortgage in the future.
Bankruptcy: How It Works and What Happens to Your Assets
Bankruptcy is a last resort and should be treated as such. In declaring bankruptcy you are giving up almost total rights with regards to your financial position. Ultimately, you have the option of selling the property or paying off the deposit to your creditors. You may also be required to repay your creditors if your household income exceeds the exemption limit. In case of house equity, you can resort to different methods to avoid bankruptcy, including refinancing, selling your home, and consumer proposals.
Consumer Proposals: Best Option than Bankruptcy
A consumer proposal allows you to keep your assets, including home equity. If a person makes a consumer proposal then they do not need to worry about most of their unsecured debts getting forgiven. Consumer proposal trustees who have been licensed are mandated to come up with monthly payments that will take care of all your remaining unsecured debts but are still controllable to you.
Consumer proposals will have an impact on your credit score – but much less than bankruptcy. They are a very effective tool for managing your debt.