For most people, there’s no quick fix when it comes to building wealth. Building financial success can be a slow climb, and one of the first steps in that journey is finding a way to getting a Smart Debt Solution. Getting out of debt will put your finances under your control.

Instead of making minimum payments on a debt that never seems to get smaller, you’ll be able to put money aside and save it toward your future financial goals. Imagine that instead of scrambling to make monthly payments, you’re deciding which investments will deliver the best return on your money.

There are many avenues out of debt, but not all of them were made equally. Let’s take a look at the pros and cons of different debt solutions, and find the smartest one for your circumstances. 

What Does A Smart Debt Solution Look Like?

How do you know that a debt solution is a smart way to manage your money? The solution that’s best for you should meet these criteria:

• It charts a path for you to get out of debt as soon as possible.
• It has a lower impact on your credit score than other methods of getting out of debt.
• It saves you money compared to other methods of getting out of debt, and it’s more affordable than continuing with the status quo.

If your debt solution meets all three of these criteria, you’re probably on the right path forward.

Debt Solution Options That Benefit You

When you’re trying to find a solution to overwhelming debt, consider talking to a Licensed Insolvency Trustee. They are professionals who can educate you about different debt solutions available to you. They are also the only professionals who can help you with legally binding debt solutions such as consumer proposals and bankruptcies. You can find more information at BankruptcyCanada.com about what a Licensed Insolvency Trustee can do and how they can work with you to find a better solution.

Debt Consolidation Loans

Debt consolidation is offered in a few different formats, but one of the simplest is where you take out a personal loan and pay back your various outstanding debts. Instead of juggling multiple debt payments, you only have to deal with one, but the main reason to consider a debt consolidation loan is to get a lower interest rate.

If you can’t qualify for a lower interest rate because of your credit score, or you’re considering a consolidation loan to avoid collection actions, an alternative may be more appropriate for your situation. Some lenders may offer a lower interest rate, but only if you put up collateral such as home equity.

Be very wary of getting a home equity loan for debt consolidation. You can put your home at risk unnecessarily when there are other ways to get out of unsecured debt without losing any assets. Don’t let good assets chase bad debt if there’s a better answer.

Debt Settlement

Debt settlement is a solution where you attempt to negotiate with your creditors for financial relief. Effectively, you ask your creditors for relief to ease the financial burden on you. Successful negotiations can be tough because your creditors need to see what they can get out of it. If you have substantial assets, they may believe they can recoup more of their costs by forcing you into bankruptcy.

Debt settlement can work well for someone who has or comes into a lump sum of money but not enough to pay all of their debts in full. They can offer creditors a large up-front settlement, and creditors may agree to a settlement because they can recoup a fair amount of their money now instead of going through the time and money it takes to collect from someone.

Be careful about working with a debt settlement company, and make sure that you’re aware of any fees that they charge. It can be tougher to do debt settlement if you don’t have a lump sum of money available. 

Consumer Proposals

Consumer proposals have become an increasingly common alternative to bankruptcy. Unlike negotiating a debt settlement, a consumer proposal is a federally regulated procedure that can result in legally binding debt relief.

It does come with a cost. A consumer proposal can remain on your credit report for up to six years or three years after you finish paying it, but it can also reduce the amount you owe by up to 80%.

A consumer proposal allows you to make a single monthly payment that is disbursed to your creditors for a period of up to five years. If enough of your creditors agree, all of them are bound by the proposal’s terms.

A consumer proposal meets all three criteria for a smart debt solution. It gets you out of debt in a reasonable time frame, it can save you a large sum of money compared to other debt solutions, and the impact on your credit score lasts for less time than it would in bankruptcy.

Talk to a Licensed Insolvency Trustee about finding the right path out of debt. Once you’re debt-free, you can start down the path toward building wealth.

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