Wednesday, April 25, 2012

Debt Relief Options in Canada

Many consumers have spent time in recent weeks and months researching different debt relief options available to them in Canada. Credit card debt is among the biggest challenges people face with their budgets today. High account balances create high monthly payments. This is coupled with high interest rates, which make those high monthly payments fairly ineffective at reducing debt balances quickly. Different debt programs are available to help consumers more quickly eliminate debt. However, before choosing a debt program, consumers should take time to explore these options in detail.

Two Main Types of Relief Options
There are two main types of debt programs available to assist consumers with their financial situation today. These include debt consolidation loans and debt settlement. Through a consolidation loan, all credit card debt is refinanced into a single loan. No debt is eliminated through the refinance process, but the new loan is structured to provide faster repayment results. Credit cards are difficult to pay off because they typically have a high interest rate as well as a revolving term. Most consolidations loans have a lower interest rate and a fixed term, which allows account balances to be paid off within a few years. The other option to consider is debt settlement. This solution can create an immediate reduction in debt balances. Through this process, a consumer first must provide a lump sum of cash to be used as a negotiation tool. A professional debt negotiator contacts creditors to request a reduction in account balances, and the lump sum of cash is used as an incentive for them to agree to a balance reduction. If they agree to reduce the balance, they will receive a portion of that lump sum for immediate repayment of some of the debt.

Which Relief Option Is Best?
The two options are quite different, but both can have significant and beneficial results on a consumer's financial situation. Consolidation loans may require a consumer to have good credit scores initially, so this may be more suitable for a consumer who has managed to pay most bills on time despite struggling with debt. Debt settlement, on the other hand, does not require a consumer to have a certain credit score. It is more suitable for those whose credit has already been affected by their debt situation. Further, a lump sum of cash is necessary for this strategy to be successful, so a consumer will need access to cash either through equity in a home, by saving for it or through another option. There is no solution that is best for everyone, so a consumer will need to review the options and choose the solution that is right for him or her.

Estimating the Results
Consumers can utilize a debt calculator to estimate monthly payments with each solution. This can help a consumer to determine which relief option is more affordable. Further, these calculators can help a consumer to determine the results of each program and see how quickly debt may be paid off. Using a calculator can help a consumer to determine which solution may be best. 

It can be difficult for a consumer to pay high account balances off on his or her own. These different relief options are available to make repaying debt and becoming debt free a faster and easier goal to accomplish.

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