The average Canadian owes nearly $23,000 in personal debt. Including mortgages, in 2017, Canadians’ collective household debt increased 6% annually to $1.8 trillion. Even the U.S. is taking on record levels of debt. They’ve hit an all-time high of overall household debt owing $13.54 trillion by the end of 2018 in mortgages, student loans, and credit cards, according to the Federal Reserve Bank of New York.
The sheer stress of debt has been linked to depression, high blood pressure, suicide, and stroke, among other serious health and wellness concerns. But there is hope and there are debt solutions—some more clever, sustainable, and outside-of-the-box than others.
4 outside-of-the-box debt solutions
1. Seek credit counseling and debt advice
If you’re in debt and looking for solutions, your first step should be to seek advice. Before you make any moves, educate yourself on your options and weigh the pros and cons of every decision. Arm yourself with knowledge.
There are many online resources as well as for-profit and nonprofit credit counseling agencies that offer financial advice. Bring your questions on budgeting, debt management plans, student loan counseling, personal financial advice, and homeownership counseling, among other topics. At Progressa, we also offer counseling services as we ensure that every potential loan works for both parties before entering into any agreements.
Here’s a recent blog post of ours that discusses when to seek credit counseling and debt advise—and where to look—more thoroughly.
2. Tackle your debts faster with bi-weekly payments
The easiest and quickest debt solution may, unfortunately, be the most obvious and trickiest depending on your personal financial situation. Rather than paying off your debts monthly, pay as much as you can afford bi-weekly. If your debt is big enough, for example, if you have a mortgage to pay, the quicker you pay it off the less interest you’ll have to pay. This could save you thousands of dollars in interest just by shortening payment period.
Of course, this may require you to make some adjustments to your monthly expenses, buying habits, and even boost your income. Here’s a simple-to-follow blog post that might help you manage your finances and debt more efficiently.
3.Consolidate your debt
In a recent blog post called Debt Management Solutions for Millennials, we discussed the popular ways to tackle debt: debt stacking or the “snowball method.” The challenge with both of these methods is that debt most often doesn’t just come from one source.
By the time you’re burdened with debt, you likely owe on several credit cards, bills, student loans, mortgage payments, and more. All of which of course have their own minimum payments, due dates, and interest rates. If that’s the case, it may be wise to look into consolidating your debts into one large bi-weekly or monthly payment with a lower interest rate.
Here’s an article we wrote on how to discover whether it makes sense for you to pay off debt with a loan—and another on how to consolidate your debt.
4. Consider a consumer proposal before bankruptcy
If the other options don’t work for you, before heading straight for bankruptcy, another debt solution to consider, though not at all lightly, is a consumer proposal. In 2017, 64,229 Canadians filed consumer proposals.
What does this mean? A consumer proposal is a useful legal process for when you don’t qualify for debt consolidation loan or debt management program—and you don’t want to file for bankruptcy.
Unlike in bankruptcy, you can keep your assets when you file a consumer proposal. There’s also no interest, you pay less than you owed, and you can avoid bankruptcy. However, not everyone qualifies for this and you will still have a permanent, searchable record of insolvency. Plus it affects your credit score and has a high rate of recidivism—that is, without financial knowledge and counseling, one in five people end up repeating the process.