Till debt I do part

July 30, 2012 2:50 PM

Debt solutions in Canada? Insight would be appreciated!

I am in my mid-thirties and live in the GTA. I struggle with my finances on a regular basis and am wondering which if any of these would be the solution: debt consolidation, credit counseling or bankruptcy.

My debts run from a $500 HBC card (maxed out), a credit card owing about 2k, a 9k line of credit with my bank and I am nearly always about 1k in overdraft. I have been leaning on payday loans to float me because sometimes my paycheque can't cover all my bills and debts (including personal loans from friends).

What is a good first step? If you were in debt in Canada, how did you get out of it? What sorts of services would you recommend or suggest I avoid. This is embarrassing and upsetting but I want it to get better.

posted by anonymous to work & money (8 answers total)

You sound like perhaps a good candidate for a consumer proposal...?
posted by kmennie at 2:58 PM on July 30, 2012 [1 favorite]

Yes, a consumer proposal is an option - something that they may bring up at a not-for-profit credit counseling agency, which is what you need. They will (or should) assess your individual situation, go through all of your options and do so for free and in an absolutely non-judgemental way.

If only you were in Alberta, I would highly recommend these guys (don't be fooled by their slick website), but they are so wonderful that I bet if you called them, they might be able to recommend a good agency in the GTA. I wish you luck. We are still in debt, so I can't offer you advice there.
posted by kitcat at 3:15 PM on July 30, 2012

You should check out the books and TV shows of Gail Vaz Oxlade. She is excellent for teaching you how to manage your money once the crisis is past. Google her website and there are budget worksheets and so on. The idea of hers I found most helpful was that she allocates percentages to everything---so you plug in your income and it will tell you how much you can afford to spend of housing, transportation, debt repayment, clothing/gifts, food, life and so on. This way, you can keep everything balanced and there is no guilt. If it says you have $50 to spend on clothing and gifts, you can spend it and know that everything else will be paid off. She also advocates, once you have figured out your game plan, that you move to cash-only so you are not tempted to overspend. No cash in the jar, no more spending! It is so much easier to keep track of than checking account balances all the time.
posted by JoannaC at 5:28 PM on July 30, 2012 [2 favorites]

Seconding Gail Vaz-Oxlade. You can watch her shows on slice.ca for free (Princess and Til Debt Do Us Part) -- it is pretty nice seeing people in a LOT more debt get out of the hole in three years or less with her simple solutions (providing they have the self-control). Also her website is very handy. JoannaC mentioned her budgeting system, which you can easily access here.
posted by thebots at 1:09 AM on July 31, 2012

I'm in Canada too. My credit union helped us consolidate some debt and get better rates, and I think there is a non profit that does this. If that doesn't work there are non profits like that one in Alberta, but I have no experience with them.

The advice I would say is:

1) consolidate your debt with the lowest interest rate option. Your credit union should be able to advise. My guess is HBC and credit card are higher interest than line of credit, and if so put all debt in the line of credit. If it works like mine, you just need to put something on that line of credit by a certain day each month.

2) set up monthly installments you can afford without going to payday loans, because their rates are crazy!

If you aren't at a credit union, Toronto's Meridian credit union has loans for consolidating debt, and a calculator for determining if you should. Their line of credit interest is pretty low (3.5%, for example) compared to credit cards.
posted by chapps at 1:21 AM on July 31, 2012

BTW I hadn't heard of Meridian, but they seem to have broken off from the massive Quebec credit union, Desjardins, in Ontario.
posted by chapps at 1:22 AM on July 31, 2012

Your bank may do all this, but I don't deal with banks at all, so am not sure. I do know my credit union seems to have better rates, and I like that I am an owner not a customer. But I am in Victoria, and don't know the credit union/bank options in TO.
posted by chapps at 1:24 AM on July 31, 2012

Any of the places that say they will reduce your payments (as well as reducing your debt load completely) are simply going to have you make all the payments to them - they'll hold on to the money for the first few months as their fee (letting all of your debts go bad), and then negotiate with the companies for pennies on the dollar. You can do this yourself - stop paying the debts, pile up the money, deal with the collections people calling you for many months, and then 6-9 months later, when you have a nice little pile of cash, settle the debts. A little more hassle for you (dealing with the calls), but a heck of a lot cheaper.

Debt consolidation might seem like a good idea - but is it going to solve the overall problem - that you are spending more than you are making? There is a problem somewhere in your finances - either you are spending too much, or you aren't making enough. Are you on a tight, written budget? Are you spending with cash as much as possible? Have you tried looking for a second job? Do you have a car? Deliver pizzas. If you aren't downtown, get yourself a lawnmower in the summer and a shovel in the winter. Do you have any skills that you can market? Lowering the interest rate will lower the minimum payments somewhat - but is that going to be enough on its own to actually make progress on the debt?

If I woke up in your shoes, I'd sooner let a debt go bad than step into a Payday Loanshark office again. I'd also let the debts with financial institutions go bad before taking out another loan from friends - that is a good way to lose friends.

My wife and I currently have over $80,000 in consumer debt - we lived well above our means for the first few years of our marriage, and are paying for that now. We've paid off over $20,000 in the past year - and that's thanks to my working multiple jobs, her working plus starting her own business, and living on a tight budget. Dining out consists of a McDouble and a $1 pop at McDonalds. Our entertainment (when we aren't working) is going to the gym (which I get a great deal on through one of my employers). Coffee is something brought from home, not purchased at Starbucks. Value Village and the Sally Ann are my friends. We follow Dave Ramsey, although his personal beliefs are a bit much for some - he's an outspoken, conservative evangelical Christian, so his advice is based on that - but by and large the financial advice is very similar to Gail's (just from a different perspective). We are also in Canada, so some of what he says has to be translated into Canadian financial terms.

You Can Do This! It seems like a long road with no end in sight, but getting on a budget will be a huge first step - then everything you do after that is gravy.
posted by PGWG at 6:34 AM on July 31, 2012