Getting out of the debt trap is a goal anyone can achieve. It requires a comprehensive plan that starts with reviewing spending habits and prioritizing needs. Mian, Straub and Sufi suggest that economies might escape from a debt trap by using fiscal policies to erode real interest rates. Alternatively, they can use inflation to redistribute wealth from creditors to debtors.
1. Debt Consolidation Loans
It is easy to accumulate debt, and it can feel impossible to get out of it. Credit card companies are often flexible if you miss a payment but large banks are risk-averse and won’t approve you for a debt consolidation loan unless you have a high income, substantial assets or a cosigner.
Having an asset (like your house) as collateral will increase your leverage with lenders and help you negotiate a lower interest rate. You may also be able to stretch the loan over a longer period of time which can reduce your payments and interest costs.
However, it is important to understand that a debt consolidation loan will lower your credit score and can leave you vulnerable to a high-interest rate if you fail to make the required payments. This type of debt consolidation is best suited for individuals who want to convert their “Bad Debt” into “Good Debt” by using their equity in an appreciating asset.
2. Credit Counselling
A credit counselling agency in Calgary can help you explore your options for addressing your debt. They offer free and confidential consultations to assess your situation and help you develop a plan for financial freedom. They can also help you set up a budget and get your finances back in order. To learn more about debt consolidation Alberta, visit on hyperlinked site.
They can offer a debt management program that allows you to pay off all your outstanding debts over a specific period of time and reduce your interest rates or payment amounts. This is a good option for those who have the funds to repay their debts but want to reduce their payments and/or interest rates.
3. Management Plans
Many Albertans struggle with consumer debt. If you are one of them, don’t give up! There are several programs and options available to help you reduce your debt and get back on track. Whether you have had multiple late payments or taken out payday loans, a debt management plan may be right for you.
A Debt Management Plan (DMP) is an agreement with your creditors to make a single monthly payment based on your ability to pay and often includes interest relief. The plans are run by reputable, provincially regulated credit counselling agencies or debt consolidation providers.
However, it is important to note that not all types of debt can be consolidated through a DMP. Typically, any debt that is secured by collateral (like your home) cannot be consolidated using this method. For those with this type of debt, a Consumer Proposal is often a better option. This process will also stop collections actions and wage garnishments from occurring while you work through your debt reduction plan.
4. Negotiation
Debt settlement is a type of debt solution that allows you to negotiate with creditors in order to renegotiate payment terms. This includes reducing the amount you owe, lowering interest rates and extending repayment periods. The debt settlement process is typically facilitated by an insolvency trustee. It remains on your credit report for two years, compared to seven in bankruptcy, but can significantly reduce your debt payments. It can also help you retain assets such as vehicles and property and RRSP contributions.