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    Getting Out of Debt: How Credit Counselling Can Help
    Identify Your Options
    If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income,
    your debts are a serious problem requiring action. Here are some basic alternatives for
    getting out of debt:

        •   Credit Counselling
        •   The Do-It-Yourself Approach
        •   Debt Consolidation
        •   Debt Management Program
        •   Consumer Proposal
        •   Bankruptcy

    Credit Counselling

    Many people think of credit counselling along the same lines as debt management or debt
    consolidation, but it's much more than that. Credit counselling is about education, making
    informed decisions, planning for your future, and having a plan that is based on your
    individual situation.

    When you call a credit counsellor, they will ask you a series of questions in order to identify
    the root cause of your financial distress. Before they can recommend a solution to your
    problem, they must first have a thorough understanding of your problem. Next, the
    counsellor will conduct a financial analysis by completing a monthly spending plan/budget.
    This will provide an insight into how much money you are spending each month versus
    your total monthly income.

    With this comprehensive understanding of your financial situation, the counsellor can begin
    to identify the appropriate solution for your specific situation: of which, there are a few

    The Do-It-Yourself Approach

    After conducting your financial analysis and budget, your counsellor might suggest the do-
    it-yourself approach, which will include completing self-help educational programs on
    budgeting, money management, and credit. By going it alone, you may be negotiating with
    your creditors, paying off debts with the highest interest rates first, obtaining a second job
    and cutting up your credit cards. While this way is certainly very effective, it is important to
    note that it requires self-confidence and self-discipline to follow this approach and follow
    through to completion.

                         InCharge Canada – Getting Out of Debt: How Credit Counselling Can Help Identify Your Options - page 1
    When negotiating with creditors, you will find that some are willing to negotiate lower
    payments or interest rates, or waive late charges and other fees, because they realize that
    it’s better to receive some of the money owed than none of it. But you will have to ask
    yourself if you have the ability and temperament to conduct time consuming negotiations

    Debt Consolidation

    In a typical debt consolidation, you consolidate your existing debts and mortgage payment
    into one, larger mortgage payment, sometimes at a lower interest rate. You take out a loan,
    often using your home as collateral, the lender sends you a cheque and you pay off your
    creditors. But don’t fall behind—you could lose your home!

    If you have a habit of buying on credit and carrying large balances on your credit cards,
    debt consolidation won’t fix your underlying spending problem. Also, you remain solely
    responsible for paying your own bills and negotiating with creditors.

    Debt Management Program (DMP)

    The credit counsellor may suggest a DMP, in which the counsellor will work directly with
    creditors on your behalf as well as provide you with additional education and guidance to
    make sure you stick with your plan and pay off your debt. You will send a single payment
    each month to the agency. The agency then pays the appropriate amount to each creditor.

    While debt management services may save you money by working with creditors, they
    typically do not negotiate with creditors to pay less than the total principal amount owed. A
    negotiation with a creditor to pay back less than the total principal amount owed is often
    referred to as debt settlement and is rarely an option recommended by a credit counsellor
    except for very unique situations.

    Consumer Proposal

    In a Debt Management Program, debts are paid off at 100 cents on the dollar, but interest
    is normally reduced or waived entirely. If this is not a feasible solution, the next step is to
    look at a Consumer Proposal, which is a legal proceeding, set out in the Bankruptcy and
    Insolvency Act, but which is one step short of a full Bankruptcy. In a Proposal, interest is
    frozen entirely, and the principal on the debt is paid off at a negotiated rate, which will
    always be less than 100 cents on the dollar, in some cases much less. The rate will be
    determined by a Bankruptcy Trustee, who will calculate the maximum amount that a debtor
    would be able to pay, over a time period up to four years long. During this time period,
    payments would be made to the Trustee, who would then pay pro-rata shares out to the

                       InCharge Canada – Getting Out of Debt: How Credit Counselling Can Help Identify Your Options - page 2
    It should be noted that creditors have the right to vote to accept or reject the proposal. If a
    plurality is achieved for acceptance, the proposal is binding for all creditors, including the
    minority who voted to reject it. In some cases, though, if a plurality votes to reject, then the
    debtor can be forced into involuntary bankruptcy.


    Filing for bankruptcy should only be considered as an absolute last resort. Bankruptcy is a
    legal proceeding that is available to a person to cope with a financial crisis. One of the main
    purposes of bankruptcy is to afford the opportunity to a person, who is hopelessly
    burdened with debt, to free him/herself of the debt and start. However, it comes with a
    high cost.

    Many people who file bankruptcy make the mistake of doing so without fully exploring their
    options, and never realize they have other, more viable choices that will allow them to
    preserve a better credit rating. That is why it is critical that if you are suffering from
    overwhelming debt that you contact a credit counsellor right away.

    Bottom line: Know that you have options for getting out of debt, and explore them fully.
    The key is finding the right solution for you.

    Other Options

    The alternatives mentioned above are some of the possible solutions to reduce or eliminate
    debt. The best way to discover the most effective way to get help is by obtaining
    assistance from someone trained in handling difficult debt problems.

    That is why it is critical that if you are suffering from overwhelming debt that you contact a
    credit counsellor right away. By working one-on-one with a counsellor, you’ll be able to
    determine the best plan to address your concerns and the most appropriate solution for
    your situation.

    At InCharge Debt Solutions, we are ready to help you discover the solution that is right for

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                       InCharge Canada – Getting Out of Debt: How Credit Counselling Can Help Identify Your Options - page 3

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