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Category: Blog

  • By the Numbers: What is a Bad Credit Score?

    Your credit score is very important. It represents how lenders perceive you as far as risk and impacts how likely you are to obtain various credit products. If you’re concerned about your credit, you may be wondering what a bad credit score is – and so today’s blog should help you better evaluate your own situation.

    A consumer credit score, also known as a FICO score or Beacon score, ranges from 300 to 900. According to TransUnion, a score above 650 will likely qualify you for a standard loan while a score under 650 will typically make receiving new credit difficult. These are the typical ranges:

    • 750+ Excellent
    • 680+ Good
    • 600-680 Fair
    • Below 600 is not good

    One of the quickest ways to get a bad credit score is to default on your current debts. Missing even one payment can be detrimental. Also, if you have defaulted on numerous accounts, you may not actually remember everything you’ve missed (phone bills, utilities, and other products that are not loans and credit cards), meaning they often get lost in the shuffle, further impacting your credit score.

    Building great credit takes work, but breaking down that great credit can be swift and long-lasting. Once credit has been destroyed, you may want to throw your hands up in the air in defeat, but don’t give up –recovering from bad credit is not as painful as you might think.

    If you’re ready to rebuild, there are certain steps that you can take to get the process started. Begin by getting your credit report to better understand what’s listed there and what you owe. Get it from both credit reporting agencies – Equifax and TransUnion.

    The next step, and arguably the most important step, is to deal with past debt. Obviously, if you had the money to pay these past due balances, you would have done so, but ignoring them further just exacerbates the issue. Speak to a financial consultant who specializes in this area to get support concerning options to clear bad debts.

    While dealing with a bad credit score and rebuilding credit, a secured credit card is a great way to build things up.

    Also, remember not to repeat past bad habits. As you rebuild credit, don’t max out new credit, make late payments or go crazy applying for credit everywhere. These are all red flags for lenders and work towards bringing that credit score back down. Try to keep your limits at 50% of your available credit (or less) and make more than the minimum monthly payments.

    At DebtCare, we understand how difficult it can be when you’re sitting with a bad credit score. If you’re struggling to deal with your debt, we can help.

    Call us today for a free consultation: 1 (888) 890-0888.

     

  • Are You Ready for Canadian Mortgage Interest Rates to Go Up?

    Currently, Canadian mortgage interest rates are at record lows. This has been great for those looking to obtain mortgage financing over the last few years, whether first or second mortgages. However, as the saying goes, nothing lasts forever.

    Back in March, CTV News reported that experts are warning of a rise thanks to U.S. bond prices. According to the article, “Fixed rate mortgages, the most common in Canada, are tied to long-term Canadian bond prices, which are in turn tied to U.S. bond prices. Banks sell bonds to raise money to lend to mortgage holders and other borrowers. When the U.S. Federal Reserve raises rates, bond prices typically fall. As bond prices fall, banks tighten their lending, and mortgage rates rise.” This could mean hikes for Canadians looking to refinance their current mortgages.

    Read more on this here: http://www.ctvnews.ca/business/mortgage-expert-warns-u-s-fed-will-cause-rate-increases-in-canada-1.3322093.

    If mortgage rates rise, many Canadians could be in trouble, especially those with high levels of debt. For example, if five-year fixed rates were to rise from 2.5% to 3% on a $300,000 mortgage, that would result in an almost $80 increase to each monthly payment. An increase to 3.5% would represent almost $150 more per month. Can you afford an increase of $80 a month? What about $150?

    Using your mortgage to get your debt in order is a great way to prepare yourself should Canadian mortgage interest rates rise. Doing so can help get rid of the various monthly payments, leaving you with one monthly mortgage payment. This will greatly reduce interest and should help you better manage on a monthly basis. But you have to act quickly.

    Start by finding out what your home is actually worth and verifying how much equity you have to play with. These two numbers will help you determine the refinancing option best suited to your situation, be it a first mortgage, a personal line of credit, or a second mortgage.

    Even if you have bad credit, having enough equity could put you in a much better financial position, helping to restore your credit and getting rid of some of that stress caused by the debt.

    Using your home to refinance and consolidate debt is a great financial option, but you need to strike while the iron is hot. It is best to lock in at the current low rates before things get more expensive.

    DebtCare offers a free, fully-customized, property valuation report and mortgage refinancing advice to help you make the most prudent financial decision.

    Get in touch today by calling 1 (888) 890-0888.

     

     

  • Trying to Negotiate with the CRA is a Dangerous Game

    We are officially reaching the end of the 2017 tax season, and that means that most Canadians have completed filing and many are patiently waiting for their refund cheque in the mail. If, however, you’ve yet to file because you know a tax debt is headed your way, or have filed and have your assessment in hand, you’re probably at the other end of the spectrum. Your first thought may be to call the Canada Revenue Agency directly and attempt to negotiate a payment plan, but we urge you to read on and reconsider that approach. Trying to negotiate with the CRA is a dangerous game – one that can land you in a heap of financial trouble.

    The CRA is well-known for their oft-nefarious tactics for collecting what they believe is owed. When you have a tax debt, the CRA is not interested in a long term payment plan with low monthly payments, and this is primarily why it is so dangerous to call.

    When you initially call the CRA to negotiate a payment plan, things may not seem so bad. Agents are encouraged to cultivate a ‘friendship’ with you in the hopes that you will willingly share as much financial information as possible. This is usually accomplished with a financial disclosure form. In this form you’ll be asked questions about your income, where you work, where you bank, where you live and your current financial obligations. Don’t be fooled – the CRA is not asking for this information to help create a payment plan that suits your current financial situation.

    Once you’ve provided this information, the CRA may agree to accept a temporary payment plan, but once this payment plan expires, that ‘friendship’ will also expire. Now that the CRA has all of your financial information, the new payment plan will take into account none but the most basic living necessities (all other creditors will be subtracted from the equation) and you’ll be facing a monthly payment far and above what you can reasonably afford to pay.

    What if you don’t pay? Thanks to that financial disclosure form, not paying isn’t really an option. Not only does the CRA now know all about your finances they also know where you work, bank and live, making wage garnishments, frozen bank accounts and property liens that much easier to obtain.

    So, if you shouldn’t be calling to negotiate directly with the CRA, what options are available? Unless you can pay the debt in full, speak with a financial consultant to discuss the various options available to clear the debt before enforcement action is levied against you. Once this happens, things are going to become much harder to navigate.

    At DebtCare, we know how difficult the CRA can be to deal with. We also know how to protect you when it comes to dealing with a tax debt.

    Get in touch today by calling 1-888-890-0888.

     

  • Breaking Down Second Mortgage Options and Costs

    A second mortgage is an excellent tool for dealing with debt. In recent years, many Canadians have come to recognize the value of using their home to consolidate debt. Today we discuss second mortgage options and costs and the benefits of using your home to deal with debt.

    Firstly, a second mortgage is great because it has nothing to do with your first mortgage, so you can structure it like a traditional debt consolidation while taking advantage of lower interest rates.

    For example, you don’t HAVE to amortize a second mortgage over 25 years as you would with a first mortgage. You can choose to amortize it over 5 or 10 years to see the debt paid off faster.

    Secondly, using a second mortgage to consolidate debt will often result in a much lower interest rate compared to the credit products you are currently concerned about.

    There are lots of different second mortgage options depending on your equity positioning and credit standing.

    If you have good credit, a line of credit or conventional second mortgage through a bank at a great low rate are two attractive options. With a line of credit, amortization is not required and your monthly payment will be based on the balance. That being said, selecting a line of credit will mean you need to be more disciplined because minimum payments are often 1-2% of the balance and thus very little will get paid to principal if you only make minimum payments. When choosing between a conventional second mortgage and line of credit, be sure to look at how long you want to be paying the debt and reverse calculate what your payments will look like – a good mortgage broker can help you do this.

    If you have bad credit, this will likely reduce your options and can mean higher rates, albeit usually still far less than a high interest loan from a finance company. If your credit is only slightly bruised, a finance company or trust company may extend second mortgage financing to you. However, if it is really bad you will need lots of equity and your broker will likely get your mortgage financed through a private lender. Most private lenders charge on an interest- only basis, however some may allow you, as with a line of credit, to pay more than the interest if your budget will permit. In this case, you’ll also want to check if the lender offering the mortgage will allow you to make extra payments without penalty.

    Keep in mind that second mortgage financing is a mortgage so you will have some fees. Potential fees could include (and this largely depends on how good or bad your credit is – good credit means fewer fees) a broker fee (lender may pay all or part if credit is good), legal fees (often less with lines of credit), application or administration fees from lender, and an appraisal (if your mortgage is not CMHC insured).

    Going directly to a lender is never a good idea. It is better to deal with a broker because they work with ALL lenders and can explore all options to get you the best deal. This is also important if your credit is bad as only brokers can obtain private mortgage financing.

    If you’re interested in finding out more about using second mortgage financing to consolidate debt, DebtCare can help.

    Call us today at 1-888-890-0888.

     

  • Protecting Your House When You Have a Tax Problem

    Tax season is officially upon us, and many Canadians have already filed or have at least started the process. While a bit of a hassle, it is usually not accompanied by a great deal of stress. However, if you are like one of the countless individuals sitting with the knowledge that a tax debt is looming once you file, or if you’re still dealing with a tax problem from previous years, stress is likely something you are dealing with on a daily basis. Today we talk about how to protect your home when a tax problem is hanging over your head.

    If you own your home and have a tax problem, you really do have to act fast. You need to have a plan to deal with the debt before it becomes a major issue.

    Why? The Canada Revenue Agency is very strict when it comes to obtaining money owed. Enforcement action is very common, and when you own your own home a property lien is an effective method to achieve this. Once a property lien is in place, it becomes very difficult to access any equity to secure a loan, the CRA becomes a secured creditor, meaning a proposal or bankruptcy becomes more difficult, and if you choose to sell, they get your equity to cover the tax debt.

    When there is no lien you have options:

    Refinancing your home to pay the tax debt is an important option to consider. Accessing the equity you currently have may give you the ability to cover a significant debt, thereby avoiding enforcement action.

    If you don’t have enough equity, or your credit will not support a refinancing of your home, a consumer proposal or bankruptcy may be good to consider. Both can help you deal with a tax problem before it balloons.

    What about transferring the home into someone else’s name – won’t that solve the problem? No! Doing so will only transfer the tax debt to that person. The CRA uses Section 160 of the Income Tax Act on a regular basis against those who attempt to avoid a tax problem in this way.

    Protecting your house means acting fast and looking at what you can leverage now to deal with the tax problem is crucial. As mentioned, the moment the CRA places a lien on your home, your options decrease exponentially.

    When a tax problem has you losing sleep, get in touch with DebtCare. We can help you get the debt sorted and help you protect your home in the process.

    Call 1-888-890-0888 today.

     

  • CRA Tax Consequences: Late Filing Penalties

    The Canada Revenue Agency timeline requirements which all taxpayers must abide by are well known. As a Canadian, you are required to file your income taxes by a certain date each year, and failing to file on time can result in penalties and interest assessed, often inflating a tax balance owing by an overwhelming amount.

    For income tax returns, possible CRA late filing penalties and interest include:

    Late-filing penalty: If you owe a tax debt and don’t file your return on time, you will be charged a late-filing penalty. Currently, the penalty is 5% of the balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. If you have repeatedly filed late, the late-filing penalty may increase to 10% of your balance owing, plus 2% of your balance owing for each full month your return is late, to a maximum of 20 months.

    Interest: If you have an unpaid balance, you will be charged compound daily interest on that amount. You will also be charged interest on any penalties charged. The rate of interest charged by the CRA can change every three months.  Interest rates are published on the CRA’s website.

    In addition, if you continually fail to file on time, or have failed to report income in previous years, you may be subject to additional penalties.

    Repeated failure to report income penalty: If you fail to report an amount on your return (whether intentionally or in error), and you also failed to report an amount in any of the previous three years’ returns, you may have to pay a federal and provincial/territorial repeated failure to report income penalty. The federal and provincial/territorial penalties are each 10% of the amount that you failed to report on your current return.

    It is easy to see how that tax debt can quickly grow after adding in penalties and interest, isn’t it?

    Just wait – these penalties, while significant, may not be the only ones you face due to late filing. While owing a tax debt is not illegal, failing to file is considered tax evasion and you can be prosecuted. Don’t think that can happen to you? Just check out the countless average Canadians prosecuted every day: http://www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng.html.

    Wait, there’s even more! If the CRA thinks that you have been negligent, gross negligence penalties equal to up to 50% of the tax debt may also be added.

    Knowing that a large tax debt will be on file once you’ve filed can be stressful, but if you’re considering not filing to avoid it this is the worst thing you can do.

    A tax debt is not a legal problem – it is a financial one. This means that you will need a financial plan to resolve it. There are financial solutions for dealing with a tax debt – even if it appears that you have no way to pay the debt. Get serious about your tax debt and seek help. Even with a large tax debt, the best course of action is to speak with a professional who understands the problem and can offer real solutions.

    At DebtCare, we have years of experience dealing with tax debts. We can help you find a way to pay it off, as soon as possible.

    Get in touch today: 1-888-890-0888.

     

     

  • Who Represents You in a Consumer Proposal?

    For many Canadians drowning in debt, a consumer proposal is a very valuable resource. The ability to reduce the amount of debt you owe, reduce interest and combine all payments into a single monthly payment you can afford, are all really significant benefits. That being said, a consumer proposal is a complex legal process, one that must be administered by a trustee in bankruptcy, so the question remains, who represents you in a consumer proposal?

    Often people are confused when it comes to this question. After all, trustees often market their services as a solution to your debt problems, and since you’ve enlisted their services, it would seem a safe assumption that they represent you. And that isn’t necessarily an incorrect assumption. A trustee does in fact represent you in a consumer proposal. The problem is, they also represent your creditors.

    When administering a consumer proposal, a trustee is required to be an impartial party, presenting the best solution for you and a fair option for your creditors. The issue with this is that trustees are paid based on a percentage of your proposal, so the bigger the proposal, the more they earn. This creates a major conflict of interest when it comes to protecting you!

    When you first meet with a trustee, they will ask you to provide information about yourself and your finances. Entering this meeting assuming the trustee is representing you and you alone can result in you providing information not necessary for the administration of the consumer proposal. This information may then be used to obtain a larger amount for your creditors, and thus a larger paycheque for your trustee.

    Going to a trustee without representation is like going to court without a lawyer. Most, we would argue, would see this as a rather dangerous idea, and thus is one we would advise against. It is the same with a consumer proposal. You want your own representation when considering a consumer proposal – representation to provide protection for you and your financial assets without having to also worry about your creditors.

    The point of this blog is not to argue that trustees cannot be trusted. Most can, but government regulation requires them to be fair to all parties, which naturally results in issues. The point is to inform you of the dangers of calling a trustee before securing your own representation.

    Our advice is to speak with a financial consultant who can protect you, one hired by you to represent you so there are no repercussions in telling them everything. They can negotiate your consumer proposal with a trustee so that the deal proposed is likely to be successful.

    At DebtCare, we have longstanding relationships with several trustees and can protect you throughout the process.

    Contact us today before contacting a trustee directly. 1-888-890-0888.

     

  • What to Do if You Have a Large Tax Debt That You Can’t Pay

    Many of us have been there; sitting with a major tax debt with no foreseeable way to pay it off. This is a common and incredibly stressful situation to find yourself in. The Canada Revenue Agency is ruthless, and when money is owed, you can’t ignore the issue. This week we discuss what you can do if the CRA is knocking on the door and you don’t have a way to pay.

    First of all, what will the CRA do if you can’t pay? The CRA isn’t interested in considering why you can’t pay. Instead, they will take enforcement action as soon as they feel it is prudent. This may include a wage garnishment, a frozen bank account or even a property lien. These are serious actions that can cause significant stress financially.

    Furthermore, the CRA does not require a court order to levy such enforcement action, nor are they required to notify you prior to putting one (or all) in place.

    So, what can you do to deal with a large tax debt if you don’t have the funds to pay it in its entirety?

    One option you may want to explore is taking advantage of the equity you have in your home. If you own your home and have paid off a significant amount, this may be easily done. However, if you don’t own your home, don’t have significant equity or have bad credit, this option likely won’t be open to you. Also, if the CRA has placed a lien on your home as a result of the tax debt, your ability to take this route is greatly reduced.

    Obtaining a personal loan may also be an option. This way you can break down the large debt into manageable monthly payments. However, as with accessing home equity, if you have bad credit you may not quality or will only qualify at a very high rate of interest.

    A consumer proposal or bankruptcy may be another option. These two represent an important option for those with debts aside from the tax debt. Both of these options can not only lower the overall debt, you can also stop worrying about interest accumulating. Both will also stop any current enforcement action the CRA (or any creditor) has taken against you.

    The best thing to do if you have a large tax debt is to formulate a plan. A good financial consultant, hired by you – not your banker or a trustee – can help by looking in depth at your finances and examining the different scenarios that are available to deal with your tax debt.

    A skilled financial consultant should understand financing options such as mortgages and lines of credit, insolvency (proposals and bankruptcies) and also CRA policy. They should be able to help you plan and administer the decided upon solution. You can also count on them to remain in your corner, protecting your interests throughout the entire process.

    If you have a large tax debt and can’t pay, time is not on your side. The longer you wait to deal with it the more leverage the CRA gains.

    Don’t wait. Call DebtCare today at 1-888-890-0888.

     

  • What is the Difference Between a Consumer Proposal and Bankruptcy?

    Often we have clients come to us with financial troubles looking for advice regarding the difference between a consumer proposal and bankruptcy. While both are very valuable resources when it comes to dealing with debt that has spiraled out of control, there are significant – and important – distinctions between the two. Today we discuss those differences.

    What is a consumer proposal? A consumer proposal is a process by which you put forth a proposal to your creditors presenting, based primarily on your income, an amount to be repaid on a debt over a period of typically 5 years. This amount is often far less than the current debt owed. All creditors must be included in the proposal and a majority must accept. Once accepted, you begin making a single monthly payment to your trustee which is then distributed to your creditors.

    The benefits of a consumer proposal are numerous. Firstly, as mentioned, the amount to be repaid is often far lower than what you actually owe. Additionally, when a consumer proposal is filed, interest stops accumulating and your creditors are required to stop taking collection action against you. This means that any wage garnishments and frozen bank accounts must be lifted.

    What is a bankruptcy? Unlike a consumer proposal where you propose an amount to your creditors, when you file for bankruptcy, you enter into a legal contract to assign (surrender) everything you own to a trustee in exchange for the elimination of your debts. In bankruptcy, you are not paying against an agreed amount – rather the number of months you have to pay is based on your income. For a first time bankrupt this is typically 9 or 21 months. Once you’ve completed the payment schedule and the terms of your bankruptcy, you are discharged and your bankruptcy is essentially done.

    Completing the terms of your bankruptcy means more than just paying monthly – it is also means participating in credit counselling and disclosing all extra income you receive. If you receive more income during your bankruptcy than what was provided at the time you filed, you may be subject to additional surplus income, meaning you will have to make additional payments in your bankruptcy.

    The benefits of bankruptcy are, as with a consumer proposal, numerous. You’re required to make only a single monthly payment, interest stops accumulating and your creditors must remove all enforcement action currently levied against you.

    Which option is best for you? As with any major financial decision, the answer to this question depends on your current financial situation. A main consideration is how much you earn as well as what assets you have. A financial consultant will be able to review your finances and recommend the solution that is best suited for your personal circumstances.

    One final note. Both a consumer proposal and bankruptcy must be administered by a trustee in bankruptcy, but be forewarned. While this individual does represent you, they also represent your creditors, meaning your interests are not protected. You are best served by speaking first with a financial consultant, someone who can protect you and negotiate on your behalf. At DebtCare, we stand in you corner.

    Protect yourself by calling us first. 1-888-890-0888.

     

  • Does CRA Collections Need a Court Order to Take Enforcement Action?

    When you owe money to the Canada Revenue Agency, it is very different from owing money to a regular creditor, but at the same time very similar. While a regular creditor can indeed take measures to collect the debt, the same measures taken by the CRA, CRA collections doesn’t need to follow the same route. A regular collections agency has to take certain steps before taking enforcement action against you, most notably obtaining a court order. CRA collections does not.

    That’s right; CRA collections can levy enforcement action, including freezing your bank account, garnishing your wages, even placing a lien on your home, without first acquiring court approval.

    Furthermore, they don’t need to make you aware of the enforcement action.

    Once CRA collections has taken enforcement action, the only way to have it removed (other than paying the debt in its entirety) is through a consumer proposal or bankruptcy.

    In a consumer proposal, a proposal is made to your creditors – in this case the CRA – based on a calculation of your debt, income and expenses. If the CRA accepts the proposal, you make a single monthly payment and interest is stopped. As soon as the consumer proposal is filed, enforcement action is stopped. In many cases, not only will the consumer proposal stop enforcement action and interest, it may also reduce the overall amount of your tax debt. Often repayment of a consumer proposal takes 5 years – a much longer period of time (and thus lower monthly payments) than the CRA would accept had you called to negotiate directly with them.

    In the case of a bankruptcy, the process is different. You do not make a proposal to the CRA. In a bankruptcy (first time), an income calculation is done and a reasonable monthly payment amount is established. Once filed, you will pay monthly for 9 or 21 months, depending on your income. Once you have completed the terms of the bankruptcy – paying monthly, disclosing all income, paying any surplus income, participating in credit counselling – you will receive your discharge and can begin rebuilding your credit. As with a consumer proposal, as soon as the CRA is notified of your bankruptcy, collection action will stop.

    While both a consumer proposal and bankruptcy are administered by a trustee in bankruptcy, we don’t recommend going directly to a bankruptcy trustee. The trustee is not your representative alone and anything disclosed to them will also be shared with the CRA. The best approach is to speak with a financial consultant first, one who can manage this process and can be trusted to keep your financial information confidential as you formulate a plan.

    At DebtCare, we can help you develop a strategy to protect yourself. Call us first: 1-888-890-0888.