Consumer debt: The same as all over Canada, Canadians seem to have more debt than they can handle. As inflation and interest rates continue to rise, an increasing number of Canadians are struggling to keep up with the payments. What should you do when you cannot pay back the loan?
Understanding Your Debt
The first step to tackling your incapacity to repay your loan is to face your debt squarely. That means evaluating your financial position. Do a deep dive into your debts and list them:
- Who do you owe?
- How much do you owe?
- How much are the monthly payments?
- How much interest is being charged?
Doing so will improve your grasp of how much interest you are spending on different aspects of your life, and what the hierarchy of your debt is so you can prioritize that which has the highest interest first. You can also use this analysis to tell the difference between good debt (such as a mortgage or student loans) and bad debt (high-interest credit cards, for example).
Options for Managing Debt
If your monthly payments feel like a lot to handle, here are some potential solutions you can explore:
1. Loan Deferment or Forbearance
But loan deferment enables you to pause your loan payments temporarily without penalties. This is sometimes offered for student loans and certain personal loans. Forbearance is like deferment, but usually applies to other types of loans and gives you allowed reduced or stopped payments for a period of time, though interest may continue to accrue.
2. Debt Consolidation
One is consolidating your debts into one monthly payment. You can save on monthly payments overall by moving several debts into one loan that has a lower interest rate. If, for example, you’re paying 19% on a credit card and can transfer that balance to a line of credit that charges 7%, you’ll save a lot in interest payments. Not only does this manage your debts more easily, you can use your savings to apply against the principal, meaning you own your home sooner.
3. Restructuring Your Debt
Restructuring means negotiating new terms with your creditors. This can involve lengthening the repayment term, lowering the interest rate or even paying less than what you owe. The first step is to contact your lenders to explain your situation and see what options they have available. Most lenders are keen to find solutions with borrowers who have made a good-faith effort to repay their debts.
Finding Additional Income
In addition to trying to manage your current debts, think of ways to generate more income. This could include:
- Selling unused items around your home.
- Taking on a side hustle or freelance work.
- Utilizing coupons and rewards programs to reduce everyday expenses.
Every little bit helps when it comes to putting extra money toward your loans.
Stay Positive
As much as it seems scary now, any economic condition will not stay as it is forever; high inflation, high interest rates, etc will change over a period of time. If you have the right face-preparation tools on hand, you can start walking toward financial stability through proactive debt management.
Resources for Further Assistance
If you need more detailed guidance, consider contacting a financial advisor or credit counselling service. They can provide personalized advice and help you create a plan tailored to your situation. Additionally, for more information on managing debt, you can check out our guide on debt consolidation.
It’s crucial to take control of your financial situation before it spirals further out of reach. Remember, you’re not alone in this struggle, and options are available to help you regain your footing.
