Canada Debt Reduction

Canada Debt Reduction

Canada Debt Reduction

Posted on: December 12, 2011 - 3:18 pm
by Admin

Debt reduction programs offer ways to pay off debt on more manageable terms. Whilst the overwhelming majority of consumers want to keep up with their debt repayments, this may not be possible due to adverse personal circumstances, such as a relationship break-up, unemployment or ill health. The debt management plan and debt settlement program provide an alternative to the standard repayment terms of the credit agreement.

Advantages of Debt Reduction Programs

  • Reduction to the principal. A debt settlement program could lead to up to 50% of personal debt being written off. This means that the term can be shorted and repayments reduced.
  • Bankruptcy alternative. Those who don't wish to file for bankruptcy can enter a debt reduction program. Whilst it involves making repayments, it helps avoid the stigma of bankruptcy.
  • Lower repayments. It is possible to reduce credit card debt and unsecured loans at an affordable rate rather than the amount specified in the credit agreement.
  • Creditor contact. Although not guaranteed, the borrower is less likely to be approached by creditors for the repayment of debt. Should this happen, the intermediary (debt free solution provider) will be able to offer guidance and assistance. Most will be prepared to contact the creditor.

Disadvantages of Debt Reduction Programs

  • Low credit score. Entering a debt relief program involves failing to comply with the terms and conditions specified in the credit agreement. Lenders will report this to the three major credit reference agencies (Experian, Equifax and TransUnion) which will result in bad credit.
  • Extended borrowing term. The reduced repayments on a debt management plan could actually extend the life of the debt. However, freezing interest and further charges will help.
  • Not legally binding. Unlike bankruptcy, neither debt free solution is legally binding. This means that the creditor can still contact the borrower for the repayment of any money owed.
  • Monthly repayments. The repayment schedule might not be affordable for everyone, especially if a consumer has recently lost their job. Filing for bankruptcy under chapter 7 does not require that any of the money owed is repaid to creditors so could provide a more viable alternative.

Debt reduction programs, such as a debt settlement program and debt management plan, are effective ways to pay off debt for struggling borrowers. Unlike filing for bankruptcy, they are not legally binding so that person will not benefit from court protection. However, a debt free solution will normally prevent creditor contact and the client will always have a place to turn should things start to get too much for them.