Debt Relief Programs
Many Canadians struggle with high levels of debt, and as inflation worsens, more and more are looking for ways to manage it. A lot of the high-interest debt comes from credit cards and payday loans, which can seem almost impossible to pay off without any help. This is when people look to the government to see if it can help.
Unfortunately, the CRA doesn’t offer any grants or programs to help with debt relief. That does not mean they don’t support different debt relief options, or that they aren’t associated with them. They monitor many of these services and their associated fees.
Because of this, many scammers advertise free government grants or Canada debt relief grants and take advantage of those looking for programs to help with debt relief. Before making any debt-related decisions, verify that the company is legitimate.
When you are looking to become debt-free, it is important to verify that the company is legitimate, but you also want to make sure the solution you are being offered works for you. Before you take any options, it may be a good idea to get a second opinion. There are quite a few debt-reduction options out there, and you want to be sure you choose one that not only helps you reduce your debt but also doesn’t leave you with more negative impacts than positive ones.
Credit Counseling
One way to start dealing with your overwhelming unsecured debts is to reduce them through credit counselling. However, it is usually recommended that you try to consolidate your debt first. This can negatively impact your credit score, so it isn’t usually recommended as a first choice.
Credit counselling isn’t a free government grant, but it is free debt advice. How it works is you are paired with Licensed Insolvency Trustees or Credit counsellors from not-for-profit organizations or firms. Once you have been paired up, they will go over your debts to see if they can help you with a debt management plan. This can involve lowering interest rates, combining and reducing debts wherever possible. They also help you come up with a budget to increase your debt reduction faster.
Debt Consolidation
The first step in dealing with debt is consolidating it. How it works is by combining all of your debts to reduce your interest rate and monthly payments. This usually involves taking on high-interest debt and refinancing it into a lower-interest personal loan. While the amount that you owe stays the same, your interest payments are dramatically reduced, making the debt more affordable to pay off. This is called a debt consolidation loan.
Consumer Proposal
A consumer proposal is the only legal form of debt settlement in Canada and a form of government-regulated debt relief. How it works is that a Licensed Insolvency Trustee works with your creditors to come up with reasonable payments that you can afford. Often, you can have your debt reduced up to 80%. Keep in mind that a consumer proposal does appear on your credit report and can have a greater negative impact.
That said, lenders often prefer consumer proposals over bankruptcy because they ensure they will still receive some money. With a bankruptcy, they would not receive anything. That is why consumer proposals are more recommended,d and bankruptcy is recommended as a last resort.
How Long Do They Stay on Your Credit File?
Consumer proposals can stay on your credit file for three years after you complete all of the payments, or 6 years from the date that you filed, whichever comes first. On your credit file, it’s seen as an R7, which is debt settlement. This means that it doesn’t stay on your credit report as long as a bankruptcy would.
Average Cost of Filing
While there are no upfront fees, there are costs. These include fixed administrative fees as well as a levy on payments that are made to your creditors. Typically, admin fees are around $1,500, and the levies are about 20%. This amount is added to your repayment amount and spread over your payments.
Bankruptcy
While bankruptcy also isn’t a free government grant, it is legal. The Bankruptcy and Insolvency Act supports this form of debt relief. Essentially, bankruptcy is when unmanageable debt is written off in exchange for non-exempt assets. This is because it is expected that you will sell what you need to cover certain debts.
Once you have filed for bankruptcy, your debts are written off, and you can start working on your finances again. Bankruptcy can stay on your credit report for around 6 years after it has been completed. You can start rebuilding your credit history with it on your credit report, but it may make it more difficult.
Debts That Can’t Be Discharged
Under Section 178 of the Bankruptcy and Insolvency Act, some debts cannot be discharged. These amounts include:
- Spousal support and child support
- Court fines and penalties
- Debts from fraud
- Student loan debts that are less than 7 years old
Secured debts cannot be discharged unless the assets are surrendered. This includes mortgages and auto loans.
Debt Settlement
In Canada, if your debt problems become unmanageable, debt repayment programs such as debt settlement may be an option. One way to do this is through a credit counselling program or a debt settlement company. Your counsellor can negotiate with the lenders to reduce your debt to a manageable level. The second option is to negotiate with your creditors.
Often, when a debt is sold to a collection agency, they will start contacting you to collect it. If this happens, many collectors will negotiate with you to form a settlement for a portion of the amount owed. These are not always guaranteed, though; you may still need to consider a consumer proposal or even bankruptcy as part of your debt solutions.
The Difference Between a LIT and a Credit Counsellor
While Licensed Insolvency Trustees (LIT’s) and credit counsellors both help with managing your debt with legitimate debt relief programs, they do it in different ways. LIT’s are regulated through the federal government and authorized to administer consumer proposals and bankruptcies, which reduce your debt.
Credit counsellors who work with a credit counselling agency, on the other hand, provide services such as financial education, budgeting, and debt management programs to help you return 100% of your debt. If you have smaller debt repayments and need help getting your finances in order, a credit counsellor is who you should see. It’s important to remember, though, that unlicensed debt consultants don’t have as many resources as LITs.
Will Your Debt Relief Impact Your Spouse’s Credit Score
The only way debt relief options, like debt forgiveness programs, can impact your spouse’s credit score is if you’re managing joint debt. If the debt you’re managing is only in your name, then your spouse isn’t affected at all.
Canadian Emergency Debt Relief Program
The Canadian Emergency Debt Relief Program (CEDR) isn’t actually a government program, even though it is something you may have heard of. If you search for it, you won’t actually be able to find anything. This is because a debt assistance provider developed it. It was only really found on social media ads, but it gave the impression that it may have been a government program.
Government Debt Relief Programs in Ontario
When it comes to the Ontario government helping out with debt, they do have programs, but they only cover certain types of debt. RAP (Repayment Assistance Program) helps those who are having a hard time paying certain loans. The loans that qualify for this are:
- Canada-Ontario Integrated Student Loans
- Canada Student Loans issued before August 1, 2000
- Ontario Student Loans issued before August 1, 2001
- Part-Time Canada Student Loans
To be eligible, you must:
- Be a Canadian Resident
- Have loans in good standing
- Have an affordable payment that is less than the current payment
- Falls within the income threshold
This program, however, only applies to those with student loans. It doesn’t apply to loan debt, credit card debt, or even payday loans; to deal with that, you would have to go through one of the options listed above.
Debt Relief Options in Other Provinces
When it comes to provincial debt relief options, you can use the Orderly Payments of Debts program. This is available in Alberta, Saskatchewan, Nova Scotia, and PEI. This consolidates your debt into one single payment and, while you do have to pay back the full amount, the interest rate is reduced by 5%. In a similar program to this in Quebec, called a Voluntary Deposit, you’re able to pay your debts through the courts.
Tax Debt Relief Options Through the CRA
If you have income tax debt, there are a few different options available to you for debt relief. Through the CRA, these include payment arrangements and taxpayer relief. For a payment arrangement, all you need to do is log in to your MyCRA Account and set it up. You can even make it so the payments are taken directly from your bank account.
When it comes to taxpayer relief, you can request that the IRS waive any penalties and interest from your debt due to extraordinary circumstances. This includes things like severe illness, natural disasters and even financial hardship.
Outside of these options, you can claim your tax amounts in both consumer proposals and bankruptcies.
CERB and CRB Payment Relief Options
If you still owe amounts through the CERB or CRB programs, then there are some payment relief options. Since this amount is owed through the CRA, the relief options are the same as for income tax debt. This means you can make a payment arrangement, apply for taxpayer relief, or go through a consumer proposal or bankruptcy. While consumer proposals and bankruptcies aren’t options through the CRA, they are still government-regulated debt relief.
Alternative Debt Relief Options
If you aren’t quite at the stage yet of going through a consumer proposal or bankruptcy, the first step may be to try for a consolidation loan. A consolidation loan combines all of your debt into one monthly payment.
This may be difficult, though, depending on how much money you owe and your credit score. If a consolidation loan isn’t quite what you are looking for or you aren’t sure how much you would need, the first thing you should do is make a list of what you owe. This list will likely have things like:
- Credit card payments
- Car payments
- Mortgage payments
- Loan payments
- Line of credit
Your payments are then used to create a budget and show how much you can pay each month compared to what you earn. After that, if you haven’t chosen or weren’t approved for a consolidation loan, it is recommended to pay off the highest interest debt first. Once you have that paid off, then you can put the extra payments onto the next debt until you have tackled them all.
Until you have a handle on your debt, it is recommended that you not take out any more, unless you are using it to consolidate your current debt payments.
How to Prevent Incurring High Debt Levels
While sometimes debt just can’t be avoided, there are some things you can do to keep yourself in check.
- Keep your credit cards low
- Cancel debt as you pay it off
- Cancel unused subscriptions
- Avoid “buy now, pay later” plans
These are just a few things to do, but it is really important to keep track of your finances. Figure out what goes in and what comes out. It is also ideal to avoid spending money you don’t have. Sometimes this is unavoidable, but sometimes a purchase isn’t necessary and can wait until you have the money.
Create a savings account to help you save for those unexpected expenses. Write it into your budget. That way, you are less likely to spend the money. You can even set it up to be automatically taken from your bank account, so they aren’t factoring it into your budget at all.
It may not be realistic to have no debt, especially since credit lines are required to build up your credit score, but having an accurate picture of your financial situation can make a big difference. Before you take any form of debt, be sure you can realistically afford it. This can help to avoid any situations where you are unable to pay the debt back.
Do Banks and Lenders Offer Hardship Programs?
If you’re having trouble making your payments, most banks, credit unions and other lenders offer hardship programs. While they aren’t debt relief solutions, these programs help you out if you can’t make your payments due to medical emergencies, job loss, or even divorce. However, these are often short-term options that can help you without impacting your financial future.
One of the most common types of hardship relief is deferring a payment. This is also known as forbearance or a payment pause. The options available depend on your lender. This allows them to skip or pause your payments, and it’s commonly used with mortgages and car loans.
Another option is loan modification. This allows the lender to extend your loan term, reducing your monthly payments. For many, smaller payments make all the difference. Other lenders offer interest rate reductions which temporarily lower or waive the rates on both credit cards and personal loans. This is commonly referred to as interest relief.
If you need a hardship program, the best thing you can do is contact your lender. They’ll let you know the process and how you can access it.
How to Spot a Debt Relief Scam
If you’re in search of debt relief, the best way to discern scams from the real thing is to keep an eye out for red flags. These include:
- Asking for upfront fees
- Advising you to stop communicating with creditors
- Having no physical location or in-person options
- Offering unrealistic promises like erasing your debt immediately
- Encouraging you to take out a high-interest loan to cover the debt
Final Thoughts
When you’re looking to pay off your debt, it’s important to avoid debt grant scams. Doing your homework to find the right debt relief solution for you can not only help your financial stability, but it can also help you improve your financial health.
Whether your existing debt includes multiple debts, consumer debts or even tax debt, there are options to help. In fact, these options cover most unsecured debt, but they don’t come in the form of free grants to cover your personal debt. However, professional debt consultants can help you with debt forgiveness on your outstanding debts, as well as managing and making debt payments that fit your budget.
Can Spring Financial Help?
If you are looking for a personal loan to consolidate your debt, also known as debt consolidation loans, we can help! Spring Financial specializes in personal loans for all credit types. We offer loans from $500 to $35,000 that you can apply for in just a few minutes. On top of that, you can receive your funds the same day as approval.
Taking a loan with us, high-interest debt can’t help you reduce your over-the-month interest, but it can turn your debt into one affordable monthly payment, making it much more manageable. Because we work with all credit scores, we can find a financial product that will also help you increase your credit score.
All of our products report monthly to both credit bureaus: TransUnion and Equifax. This means that taking out a personal loan will not only help you improve your debt-to-income ratio, but will also increase your credit score, offsetting some of the negative tradelines on your credit report. Apply online today or call us at 1-888-781-8439.Apply online today or give us a call as 1-888-781-8439.
