Credit is a way of life here in Canada. The Canadian Banker’s Association (CBA) says a whopping 89 per cent of adult Canadians have at least one credit card, and the majority (60 per cent) pays their entire balance every month.
But what about the Canadians who carry credit card debt? What if that balance continues to grow, and the interest charges get bigger and bigger? There are a lot of debt management tools out there if you are wondering how to get out of debt. One option for relief is debt consolidation, and to get more information on this, I interviewed Jeffrey Schwartz. Schwartz is the executive director of Consolidated Credit Counseling Services of Canada, a non-profit charity that helps people get out of debt.
Samantha: What kinds of people seek credit counselling for help?
Jeffrey: We help Canadians of all ages and all income levels. Debt does not discriminate; everybody is financially vulnerable and can find themselves in trouble thanks to common issues like unemployment, illness, divorce, or simple overspending.
Samantha: What levels of debt do you typically deal with?
Jeffrey: Different levels of debt require different debt solutions. Typically if someone owes around $5,000 or less, we are often able to advise them on some changes they can make to their budget and lifestyle that can usually get them out of debt with a little hard work and determination. When you’re getting above $10,000 in debt, that’s when you may need a helping hand – often it can be too difficult to manage on your own, and we can provide some tools to get it under control. If you owe $40,000 or $50,000 or $60,000, chances are, the interest payments alone are crushing.
Samantha: I know people who have gotten into the trap of making minimum payments and trying to pay down huge debts on their own – just how hard is it?
Jeffrey: It’s a lot like being on a treadmill. You can exhaust yourself all you want, but you won’t get anywhere. Our website has a credit card interest calculator, and it’s a great tool to illustrate just how much interest you can expect to pay, and how long it will take, if you only make the minimum payments. For example, if you have a couple of credit cards with a total debt of $30,000, at 19% APR, it will take you nearly 40 years to pay that back. But that’s not the worst part. You’ll pay almost $47,000 in interest – more than your actual balance! Four decades and $77,000 dollars – it sounds like a punishment, not a repayment plan!
Samantha: Yikes. So it seems that it is the interest rates that really hurt people.
Jeffrey: Yes, when people are using high-interest credit cards and Payday loans, so much of their payments are going toward their creditors, and not enough is paying down the actual balance. That’s where we come in. Through our Debt Management Program (DMP), we are able to negotiate with your creditors to get your interest rates reduced to very low levels – often zero. You’ll still pay everything back, but without the heavy shackles of interest. Using the program in this way will allow you to pay back this debt, in full, within three to five years. To make it even easier, we consolidate all of your unsecured debts into one simple monthly payment.
Samantha: So what’s the difference between the DMP and say, a consumer proposal or bankruptcy?
Jeffrey: The big difference is with the DMP, you pay back the entire balance. With a consumer proposal and bankruptcy, you do not pay back your entire debt load, and your credit report will reflect that.
Samantha: Are there ever any cases in which a bankruptcy is the right move?
Jeffrey: It’s a worst-case scenario, but it’s helpful for people with massive debt loads and little means to pay it back. At that point, with too few assets and too little income, bankruptcy may be the best solution. The DMP is an excellent option for people who have experienced a hiccup in their financial lives but have the means to pay it back. They just need a helping hand. That’s where we come in – we can be that helping hand to lead you through your trouble. If you feel like you’re drowning in debt, we can throw you a life ring.