• If you change the way you repay your debts, you will be defaulting on your original repayment agreement. This will be shown on your credit rating for six years, which could affect the cost and/or availability of credit for that time.
• Creditors are not legally obliged to accept the new repayments terms, or stick to them once they’ve agreed.
• If you agree to repay your debts over a longer period of time, you may increase the overall repayment amount (due to interest).
• Lenders will not agree to lower repayments unless you can’t afford to make the agreed repayments to your debts.

If you choose to ‘do it yourself’, there are a few things you will have to do. For example, you will have to calculate what you can afford to pay; negotiate with your unsecured lenders, asking them to allow you to repay your debts at an affordable rate; re-negotiate if your circumstances change significantly and those payments become unaffordable; etc. If you decide to speak to a professional debt management company about your debts, they could do this for you. So – should you manage your debts alone, or should you seek professional debt advice?

Professional debt management

There are several advantages of letting an experienced debt professional manage your debts. To name a few:

• It’s not their debt – Debt management professionals won’t become emotionally involved with your debt. If you dealt with everything on your own, it could be a stressful experience.
• It’s their job – A debt management professional should be used to managing multiple debts to multiple lenders – they should know how to handle the paperwork, how to negotiate, etc.
• They understand debt – Debt management professionals will have experience in the different types of debt people have, so you can be confident they will understand yours. They may have worked with many lenders before, so they should have an understanding of the sort of proposals they are likely to accept/reject.

Debt management on your own

Some people prefer to remain in control of their own finances. If you decide you want to address your debts alone, you will save yourself the fee that some debt management organisations may charge you. It is important that if you do ‘go it alone’, you are confident about negotiating with your lenders, and are prepared to deal with the necessary calculations, phone calls and letters. If you require further information on debt management, or any other type of debt help, you could research the topic for yourself, or contact a professional debt adviser, who could talk you through the possible options.

• By agreeing to repay your debts over a longer period of time, you may increase the overall amount you have to pay (due to interest).
• If you default on a repayment agreement, this will be shown on your credit report for 6 years, which may affect the cost and/or availability of credit for that time.
• Lenders are not legally obliged to accept the new repayment terms, or stick to them after they’ve agreed.
• Lenders won’t accept lower repayments unless you cannot afford to make the agreed repayments to your debts.

If you decide to tackle your debts alone, there are several things you will have to do. For example, you will have to negotiate with your unsecured lenders, and ask them to allow you to repay your debts at an affordable rate. If you choose to speak to a professional debt management company about your debts, they may do this for you. So, should you manage your debts alone, or should you seek professional debt help?

The professional approach…

If your debts are becoming difficult to manage, then you might want to contact a debt management organisation. This may incur a fee. However, there are several advantages of asking an experienced debt professional to manage your debts. For example:

It’s not their own debt – Debt management professionals won’t be emotionally ‘involved’ with your debt, whereas dealing with the debt yourself could be a stressful experience.
It’s their job – Managing multiple debts to multiple lenders on your own is by no means easy – but debt management professionals are used to it. They should know how to deal with negotiations, paperwork, phone calls, etc.
They understand how debt ‘works’ – Debt management professionals will have experience of dealing with the different types of debt people have, so you can be confident they will understand yours. They should know what sort of proposals lenders are likely to accept/reject.

Your own approach…

Some people prefer to tackle their debts alone, saving themselves the fee that some debt management organisations may charge. If you choose to address your debts alone, you should be confident you’re prepared to negotiate with your lenders and deal with phone calls, letters and so on. Debt management is not suitable for everyone. Some people may be better off looking into an alternative debt solution such as an IVA (Individual Voluntary Arrangement) or a debt consolidation loan. For more information on debt management, and to find out if it is right for you, you should contact a debt specialist.

First off, individuals are creatures of habit. By applying for a debt consolidation loan you’re only masking the essential issue, your habits. Although a debt consolidation loan will repay your primary debt it wont deal with your spending habits. Usually People getting consolidation loans to pay off their debt end up with twice the debt they started with.

This being the second reason debt consolidation loans do not pan out. After individuals eliminate their debts it gives them access to available funds, allowing the trap to start over again. Often times Canadian’s wind up with their un-secured debt maxed out again, as well as, the consolidation loan that they were issued to pay off their debt. The most frequent comment I hear as a credit counsellor is "I want to secure a debt consolidation loan to repay my debt", "I do not want to use unsecured debt again". In theory this is wonderful but often times doesn’t happen

Unless an individual is prepared to tackle their overall problem (i.e. their spending habits) they will not succeed with a debt consolidation loan. In actual fact this is one of the main reasons that the banks have stopped issuing debt consolidation loans. They have, for the most part, stopped this because they recognise that this is only feeding the problem and not solving the problem. If you truly want to deal with your debt, cut up your credit cards, stop access to any revolving credit, make your monthly payments to pay the debt down and track your spending. It is only through the tracking of your spending habits that you will truly understand the fundamental issues of your debt. In order to deal with your debt problems, you must first understand how you got there in the first place.

If you want to live debt free you must recognise your unnecessary spending habits and make changes to eliminate them from your life. If you were to ask me what lesson I teach my clients the most, it’s how to track their spending and identify unnecessary spending.

Greg Martin
Credit Counsellor
Inspire Credit Counselling Services

Debt Consolidation Canada