Mounting debts, looming deadlines, interest payments that are too high, and getting out of control. If that’s a familiar scenario, it’s time you start looking into ways to get out of debt and take back control of your life and your finances. Two of your options for getting out of debt is debt consolidation loans and consumer proposals.
Debt consolidation loans are used to borrow money to pay back the debt you owe now. They can help you stop utilities from cutting off services, reset your credit card bills, and in the best-case scenario, reduce your interest rates. Banks offer the best rates on debt consolidation loans, but these can be difficult to get if you’re already in financial trouble.
Consumer proposals are similar to bankruptcy, but they don’t involve losing any of your assets. With the help of a bankruptcy trustee, now known as a Licensed Insolvency Trustee, you negotiate a reduction in your debt and agree to pay a fixed monthly amount back. Companies like David Sklar & Associates provide full assessments and assistance with consumer proposals.
How does a consumer proposal compare to a debt consolidation loan in the end?
1. Consumer Proposals Reduce Your Debt:
Part of a consumer proposal is actually reducing your debt. A firm like David Sklar & Associates will look at your income and expenses and propose a reasonable monthly payment to be paid for up to 5 years to settle a portion of your debts. The exact reduction depends on factors like the size of your debt and your income.
2. Stop Adding to Debt:
One of the biggest struggles consumers have with debt consolidation loans is staying out of debt. Because you use a loan to pay off your credit cards, suddenly you have room on your credit cards. It can be too tempting to use them and get back into debt for some. With a consumer proposal, you will still be paying back your credit card debt, not adding to the debt you already struggle to pay.
3. Consumer Proposals Stop Interest:
An ideal debt consolidation loan will reduce the interest rate you’re paying on your debt. If you’ve been turned down by the bank or the credit union, you can still find higher-interest loans, but then you might just be shuffling debt around. In a consumer proposal, interest stops accumulating on your debt altogether. As long as you make your monthly payments on time, you’re fine.
4. Consumer Proposals Go On Your Credit History:
The one downside to the consumer proposal is that it goes on your credit history, much like bankruptcy, and it will stay there for three years after you make your last payment.
When it comes to the question of a bankruptcy vs consumer proposal, it depends on your finances, but often bankruptcy trustees will encourage their clients to opt for a consumer proposal. A consumer proposal will keep your assets intact and it protects any extra income you may earn during the process.
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