When you’re drowning in debt, it’s easy to lose your mind. You may believe there is no solution to your financial woes. But there are ways to get out of it. Bankruptcy is a viable option, but it’s generally considered the “option of last resort” after all other options have been exhausted.

In the event that you’re having difficulty making ends meet and are concerned that declaring bankruptcy might not be the best course of action for you. After reading this article, you’ll have a better understanding of the various alternatives to bankruptcy and how to choose the best option for your situation.

Money Management and Personal Budgeting

Finding your way out of debt commitments is not a simple task, but it is achievable. If you can figure out how to better manage your money, you may be able to eliminate your debt and get your credit back on track. When it comes to financial recovery, personal budgeting is the only option that doesn’t require selling your belongings or taking out new loans. Budgeting on your own can be an impactful way to pay off debt.

Making a budget for your monthly expenses is the first step in learning how to manage your finances. Try to include all of your small daily expenditures and be as detailed as you can. Once you’ve done that, it’s time to look at your budget and see where you can save money. Is it possible to purchase off-brand goods that accomplish the same goal? Is public transportation more cost-effective than driving to work? Identify all the costs you can cut or eliminate and then go about doing so. For those who have the discipline and dedication to stick to their budgeting plan, results will show.

Informal Conversation With Your Creditors

Avoiding debt collectors is the first thing that comes to mind for most people. It’s possible that conversing with them will lead to a favourable settlement of your outstanding debt. If you’re honest with your creditors about your financial difficulties, they may be ready to collaborate with you to reduce your debt. Debt collectors may offer you more time to pay off your debt, or they may consider lowering the interest rate on your debt. They might even make you an offer to settle the debt for a sum that is less than what is owed. It’s hard to believe that a quick phone call could save you thousands of dollars.

When a person declares bankruptcy, creditors typically receive very little. As a result, creditors may be open to negotiating, rather than receiving practically nothing from the bankruptcy trustee.

Debt Management Plans

Instead of filing for bankruptcy, you can use a debt management plan to lower your monthly payments by combining existing debt with a new loan. People who want to consolidate their smaller debts should consider filing for one of these through a credit counselling firm because it is the best option for them. Poor credit makes it difficult to get an affordable consolidation loan from a traditional bank or credit union. Debt management plans can be a good solution to this problem. While it is possible to achieve a reduced interest rate with a DMP, however, you won’t receive debt relief like you would when filing bankruptcy, as you are still expected to pay off your debts in full.

Debt Consolidation

The process known as debt consolidation means applying for and receiving a loan from a single creditor to settle debts owed to several different lenders. With this method, you can obtain a loan with a lower interest rate than you’re paying now on all of your other loans. If you are successful in meeting the requirements for this type of loan, you will be able to reduce the amount of money you have to spend on interest payments for the loan’s term and pay off your debt more quickly. However, obtaining a debt consolidation loan at a reasonable interest rate is not always easy, especially if you have poor credit due to missed payments.

Consumer Proposal

The federal government of Canada offers an option for alleviating debt known as a consumer proposal. A consumer proposal is a legal agreement and a form of negotiated settlement in which the consumer agrees to pay a certain proportion of the total amount owed in exchange for the complete cancellation of all unsecured debts.

However, even if a consumer proposal will drastically lowers your credit score, you will be able to keep your assets, unlike when you declare bankruptcy. Additionally, there is no interest charged on the payments, and they are spaced out over five years. As your income and debt level change, so does the price of a consumer proposal. A consumer proposal will suspend any legal procedures against you as long as you satisfy the provisions of the agreement.

Credit Counselling

Talk to a credit counsellor about your current financial status as soon as possible if you find yourself in a difficult position because of your debt. They are qualified to explain all options out of debt.

You should avoid selling off assets, cashing out retirement savings accounts (RRSPs), or putting other assets in jeopardy by taking out a new loan. Discussing solutions with a debt expert will help you protect these assets as you eliminate your debt.

Get a free consultation with one of our debt experts.