Debt Settlement in Canada: Ultimate Guide

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The debt settlement in Canada and Ontario is complicated, to say the least. The reason is a vast number of programs being available to settle your debt. In these programs, some are safe and some work – but others do not. Thus, finding a program that is safe and works for you is quite a hassle. It becomes even more difficult when you are applying for the first time.

However, keep your worries calm as this guide addresses the exact question of debt settlement in Canada. We will see the debt settlement programs that are currently available in the market. We will also see how they work, what is the best among them, and how you can apply with confidence and get maximum benefit.

Types of Debt Settlement

There are three most popular types of debt settlement services in Canada. First, where debts can be settled legally through a consumer proposal filed with a Licensed Insolvency Trustee. Second, credit counselors offering debt management programs that might not settle your complete debt but do provide an opportunity for interest relief and a repayment plan. Third, a debt settlement company or a debt consultant may offer to negotiate an informal debt settlement agreement with individual creditors.

However, as mentioned earlier, finding a debt settlement program specifically for your needs is an uphill task. To cope with this, below are the five most common debt settlement programs which you can evaluate. Consider all and choose one which is best for you.

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Top 5 Debt Settlement Programs in Canada

1. Debt Consolidation

It is a type of loan which is issued to pay off a number of small loans. Doing this, make all smaller payments combined into one payment which is then easier to manage and repay. In most cases, debt consolidation loans expand to a longer period of time and the interest rates are low too. This gives debt consolidation an edge over all the other debt settlement programs.

Moreover, debt consolidation can be a good credit card debt solution as it deals with all of your outstanding debts. But know that, it does not eliminate your debt at once; rather, it just makes the repayment more easier and manageable for you.

To qualify for debt consolidation, you need to first apply and qualify for it.

2. Debt Settlement

It is an informal arrangement that is made with your creditors about the repayment. In this, you ask your creditors to pay back a portion of your debt first and then make arrangements for the remaining. However, this arrangement is not guaranteed and fees are required to complete the process as well.

This option is only feasible when you have a large sum of money already available, and you want to negotiate the settlement with your creditors. But, we will not recommend doing this on your own since most debt settlement companies are not trusted. They can charge you a very high fee for referring to a licensed insolvency trustee.

3. Credit Counselling

In this program, a non-profit credit counselor summarizes your debts and prepares a multi-year repayment plan for you. It is when a credit counselor offers a solution called a debt management plan. This plan enables you to pay back your debt over a long period of 3 to 5 years. This option is presented by your credit counselor to the creditors, and if accepted, you make one monthly payment to the credit counseling agency

It is important to mention here that a debt management program is not a debt cancellation or debt reduction program. Rather, it is just a program to give you more time to repay your debt. You will have to pay all of your debt. However, interest relief can be granted to make the repayment process easier for you.

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4. Consumer Proposal

It is a legally binding settlement between you and your creditors for paying back a portion of your debt. The term for this is usually 5 years. Your debts are forgiven and you begin to rebuild your credit score once the consumer proposal period ends.

Nevertheless, a consumer proposal is the safest and cheapest option to consider for your debt relief – especially when dealing with debt.

5. Personal Bankruptcy

When every option fails, personal bankruptcy is your final resort. It is the last option when dealing with debt. In Canada, filing a bankruptcy is a legal process regulated by the federal government. It offers debtor protection from creditors and a discharge of all debt at the end of the bankruptcy term.

Each of the options has its own benefits and risks. So, before picking anyone, make sure you understand it completely and have taken a licensed professional onboard to ensure you choose the best solution for your needs.

Canadian Government Debt Relief Program

The only debt relief program by the Canadian government is the consumer proposal. It is the only formal, legal debt settlement program available under the Bankruptcy and Insolvency Act of Canada. It is the only program that is reliable and safe to avoid your bankruptcy. A proposal is not bankruptcy, but it does provide the same creditor protection as a bankruptcy. It is only filed through a licensed insolvency trustee.

The Bottom Line

Every person has different financial problems, which have unique and different solutions than the others. One debt relief program might be workable for one but not for the other. So, you will have to pick one debt settlement program for you that is designed to help you get out of debt.

Each program comes with its own pros and cons. Remember that debt consolidation is a tricky process, so it is wise to talk to a licensed insolvency trustee to know what can best be done and what is right for you.

If you are still wondering about where to start and where to find the trustable insolvency for you, reach out to us today and we will help you find one. We may not provide you the service you are looking for but we can definitely recommend the best of the best for you.