The debt repayment plan that will work best for you depends on your financial situation. So ask yourself what sort of debts you would like to pay off. Also, take a look at both your short- and long-term financial goals.
Perhaps you want to pay off some business debt in order to give your small business some breathing room. Or maybe you want to pay off some personal debt so that you can put more money away for your retirement each month.
To understand your financial situation, you need to be honest with yourself and have a solid grasp of your finances. To calculate how long it will take you to pay off your debt using different repayment strategies, you can use a debt repayment calculator.
Here’s a look at three debt repayment options.
#1 Debt Consolidation Loan
Debt consolidation loans offer a way for people who qualify to pay off their unsecured, high-interest debt.
When you take out a debt consolidation loan, you combine two or more of your debts into one monthly payment, which you pay for at a set interest rate.
Debt consolidation loans aim to make the debt repayment process easier, potentially faster, and more affordable.
To qualify for a debt consolidation loan, you typically need to have good credit.
Debt consolidation loans typically only cover high-interest, unsecured debt, which creditors give without any collateral requirement.
The kinds of unsecured debt that debt consolidation loans consolidate include:
Credit card debt
Student loans are unsecured, but debt consolidation loans typically do not apply to them.
A debt consolidation program (DCP) is similar to a debt consolidation loan in that it consolidates two or more of your unsecured debts into one lower monthly payment.
However, a DCP is not a loan. Instead, when you enroll in a DCP, you work with a certified credit counselor who helps streamline your debt repayment process by negotiating with your creditors to lower or stop the interest on your debt and accept a monthly payment that works with your budget.
Unlike debt consolidation loans, you don’t need to have good credit to qualify for a DCP.
#3 Consumer Proposal
Consumer proposals, like bankruptcy, are a form of insolvency. They are generally considered less dire than bankruptcy. However, because a consumer proposal is a form of insolvency, a consumer proposal also negatively affects your credit rating.
When you qualify for a consumer proposal, your creditors agree to have you settle for less than you owe. In other words, consumer proposals offer a legal way to pay your creditors only a portion of your debt.
Your creditors may also agree to give you more time to pay the percentage, although a consumer proposal cannot last longer than five years.
If your creditors have filed lawsuits against you or are garnishing your wages, they will cease doing so.
Unlike bankruptcy, with a consumer proposal, you can retain your assets.
The debt repayment option that works best for you depends on your financial situation and goals. Each option comes with its pros and cons, so in addition to taking an honest look at your finances, it helps to consult a financial adviser or certified credit counselor.