Budgeting and paying in full with interest

You can try to pay off your debt by budgeting and making more than the minimum payments. If your debt is higher than $10,000 it will be a serious, time consuming, and expensive process unless your income is above average and you have minimal expenses.

There are debt calculators you can use to determine the time and payment it would take to pay off your debt.

Let’s look at $10000 in credit card debt at 20% interest.

If you pay $250/mth: You pay $16,616.65 in total over 67 months (5.55 years)

$25,000 in credit card debt at 20% interest.

If you pay $500 a month: You pay $54,200.48 over 109 months (just over 9 years)

It is very important to realize that in order to pay your debt in full in a reasonable amount of time, you  will have to stop using the credit as you don’t want the debt to get any higher. If you are going to stop using credit for an extended amount of time there may be cheaper options.

Equity in your home

If you own a home, you can check the equity level. Equity is the difference between the homes present value and the balance of the mortgage.  If there is significant equity in the home, you may be able to refinance your home and put the debt into your mortgage. With mortgage rates low, this is the cheapest way to pay your debt in full.

Borrow money from a family member

Few of us have a family member willing and able to do that. And most of us would rather owe money to a bank than to a relative.

Sell assets

If you have valuable assets, you can sell them to pay some or all of your debt. These would likely have to be significant assets such as vehicles, boats, valuable art works. Most of us don’t have valuable assets to sell.

Credit counselling

This is a solution where you pay back all that you owe at a lower interest rate. There is typically one significantly large monthly payment covering all unsecured creditors. These are not insolvency trustee firms. It is considered “credit counselling” and since you are still breaking the original creditor agreement with each of your creditors, it will lower your credit score. Therefore, if your credit score is going to be damaged, perhaps a better option would be a consumer proposal where you pay back significantly less than what you owe in most cases.

Consumer Proposal

All consumer proposals are filed through the office of an insolvency trustee. A consumer proposal is a legal agreement between you and your creditors to pay back a portion of your debt at 0% interest typically over 60 months (5 years). It is fully open. You can pay the agreed amount as quickly as you wish but it must be paid in full before the end of the 5 year term. Also, you cannot get 3 full payments behind. If you do, the proposal is annulled and all of your debt comes back with interest.

It is an excellent way to eliminate debt in an affordable way.

Bankruptcy

Most people want to avoid a bankruptcy but in some cases this is the better option. If your debt is high, income low, you rent and have never filed a bankruptcy before, it may be the cheapest and fastest way to deal with too much debt. There are duties and obligations and costs involved with bankruptcy so talk with an insolvency professional to clearly understand how a bankruptcy would impact you before moving ahead.