If you’re struggling financially, you’re probably wondering what’s the best way for getting out of debt. It’s an issue affecting many Canadians. In fact, according to a recent poll, 46% of Canadians say they’re $200 or less away from financial insolvency. Plus, with interest rates continuing to rise, more than half of all Canadians say they’re feeling the pinch. So what’s the best way to go about getting out of debt? Our Debt Assessment Quiz can help answer that question for you.
Use Our Debt Assessment Quiz to Determine the Best Way for Getting Out of Debt
We understand that everyone’s financial situation is unique, so there’s not exactly a “best” way to get out of debt. The method that’s right for you won’t necessarily work for someone else — it all depends on your personal situation. That’s why we developed our Debt Assessment Quiz. By answering four easy questions, you’ll get an idea of what your best debt relief options are. (Now, this isn’t an exact science, so it’s always smart to speak to a certified Credit Counsellor after getting your results, just to make sure you get all the facts you need to make the best decision for you). But before you take the quiz, there are some things to keep in mind.
Know Your Income Vs. Expenses
How much do you have coming in, and how much do you have going out? It’s an important question to ask when determining your level of debt. It’s a lot like calculating your debt-to-income (DTI) ratio. Figuring out your debt-to-income ratio doesn't sound like much fun, but it's easy to do. Simply add up all the fixed debt payments you make each month, like your mortgage or rent, condo fee, minimum payments on credit cards, student loans and auto loans. Divide this total by your total gross monthly income (as opposed to net income or take-home pay), and then multiply this by 100. That’s your DTI, and that’s all there is to it! Experts agree your DTI should fall below 43% while the average DTI for Canadians was hovering around 173% at the beginning of the year.
To get a better grip on your finances, it helps to track your expenses. An Expense Tracker can help you create a useful budget, curb unnecessary spending, simplify and consolidate expenses, and just generally keep you on a better financial path. You can learn more by checking out, Why You Need To Have a Weekly Expense Tracker.
Debt Warning Signs
If you’re thinking about taking our Debt Assessment Quiz, perhaps you’ve experienced some financial distress warning signs. Signs include losing sleep over finances, missing bill payments, using one card to pay off another, and receiving collection calls. When you don't keep up with payments, your credit score plummets. But that’s not the worst of it. Creditors can actually take you to court to recoup what’s owed to them, cars can be repossessed, and in worst-case scenarios, you could lose your home. Depending on the severity of your situation, our Debt Assessment Quiz may be able to point you in the right direction.
Understanding Your Debt Assessment Quiz Results
Once you’ve completed the debt assessment quiz, you’ll receive suggestions on your best options to get out of debt, which can include:
Managing On Your Own
Your debt crisis might not be as bad as you think, and all you really need is a slightly different approach to managing your money. This can involve taking a closer look at your current debt repayment strategies and figuring out a better way for you to pay down your debt, such as the snowball or avalanche method of debt repayment. Our Debt Calculator can help you determine your best debt repayment options.
Debt Consolidation Loan
Rather than paying back debts individually, you may want to consider a debt consolidation loan. It’s important to know that interest rates on debt consolidation loans can vary wildly, so borrowers need to do the math to make sure the interest rate on the debt consolidation loan is lower than it is on their individual debts and credit cards. But even so, for many Canadians in debt, getting a debt consolidation loan might not be an option as a good credit score is required by most lenders.
Debt Consolidation Program
Unlike a loan, a debt consolidation program involves working with a certified Credit Counsellor from a not-for-profit credit counselling agency who will help you pay off all your unsecured debt over time. They will put together a proposal which details what you’ll be expected to pay each month, and negotiate with your creditors to eliminate or reduce the interest on your debt, so you can get out of debt much sooner than you would on your own (often in just 3-5 years). All collection calls will stop and the best part is that you get out of debt without taking on more debt — makes sense, right?
Insolvency: Consumer Proposal
In 2018, 70,175 Canadians filed consumer proposals (CPs) as a means for getting out of debt. Rather than file for bankruptcy, a consumer proposal is a form of insolvency where you reach an agreement with creditors to pay back a percentage of your total debt. This amount is determined by your income and assets. However, unlike bankruptcy, when you do a consumer proposal you can keep your assets, which again is especially important for homeowners and anyone else with significant investments. A consumer proposal can last up to 60 months and stays on your credit report for 3 years after being discharged. Because consumer proposals are a form of insolvency, only a Licensed Insolvency Trustee can file a consumer proposal on your behalf.
Bankruptcy is the end of the road and a last resort when it comes to debt relief options, but for some people, it’s their best (and only) solution in order to move forward. In 2018, over 55,000 Canadians filed for personal bankruptcy. To file for bankruptcy, you must work with a Licensed Insolvency Trustee who negotiates the terms of the agreement with your creditors. Only Licensed Insolvency Trustees can administer government-regulated insolvency proceedings, such as consumer proposals and bankruptcies.
Contact Credit Canada To Discuss Your Quiz Results and Debt Relief Options
If you’ve taken the quiz and have questions about getting out of debt—most people do—give us a call at 1.800.267.2272. We can book you a free counselling session with one of our certified Credit Counsellors who can help you make sense of your debt assessment quiz results and provide next steps. They can also give you money management advice specific to you and your situation, and discuss how to get out of debt with no money and bad credit, or how to get out of debt on a low income. Our not-for-profit counselling services are completely free and confidential, so you have nothing to lose (except your debt!). Contact us today for a free debt assessment.