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Tag: debt solution

  • Mortgage Refinancing: A Viable Debt Solution?

    Mortgage RefinancingDebt in Canada has become a major problem for many individuals. The ease with which credit is granted by many credit companies sometimes makes it tough to avoid temptation, but the aftereffects can be distressing, especially if it gets to the point that it is hard to keep up with or make payments. There are many debt solutions out there, one of the most popular being mortgage refinancing.

    What is mortgage refinancing? When you refinance your mortgage to consolidate debt you are essentially using your home equity to pay off debt. Many people choose to refinance their mortgages to pay off debt because mortgage financing offers flexibility and often you can get a far lower interest rate as well as the convenience of a much more manageable single monthly payment.

    Over the past year there have been many changes to Canadian Mortgage and Housing Corporation (CMHC) rules, many of which make it tougher for homeowners to consolidate using mortgage refinancing. Previously CMHC would refinance as much as 95% of an individual’s home, and would offer lines of credit to do so. However, they no longer issue lines of credit to consolidate, and the amount has been lowered to 80%.

    The banks have backed these changes. As a general rule, banks will only grant refinancing if your new mortgage will not exceed 75% of your home’s current value (some approve at an even lower percentage). That means that if your new mortgage plus your unsecured debt is more than 75% of the value of your home, approval is not likely.

    CMHC insured mortgages are one of many mortgage options for refinancing your mortgage to pay off and consolidate debt. There are so many different types of companies outside of the banks who will compete for your business: credit unions, finance companies, trust companies, mortgage investment firms and even private individuals.

    What if your credit isn’t great? If you have less than stellar credit it might be harder to obtain mortgage refinancing for debt consolidation through a bank. Banks and finance companies like to see that those they invest in are not a high risk, and if your credit is bad you may be too risky. With that said, if you have good equity many other lenders may be willing to extend financing to you. If you seek mortgage refinancing as a debt solution but are unable to find approval, an alternative solution might be a better option. Non-mortgage refinancing debt consolidation, a consumer proposal or bankruptcy might be better suited to your situation.

    If you are thinking about mortgage refinancing as a possible debt solution, it is best to speak with an experienced debt consultant first, one who will assess you and present you with all of the financial options available to you, the pros and cons, and guide you to the best financial plan.

    For more information about mortgage refinancing please contact DebtCare Canada today by calling 1-800-890-0888.

  • Getting Out of Debt Blog Series #4: Debt Settlement

    Getting Out of Debt

    With the average consumer debt load in Canada at an all-time high, it is unfortunately not surprising to see companies popping up everywhere offering solutions to your debt problems through a debt settlement. But be wary; unlike consumer proposals, bankruptcies and debt consolidations, debt settlements, depending on the company, can sometimes come with more negatives than positives. This 4th blog in our ‘getting out of debt blog series’ looks at the debt settlement, giving you the information you need to help you make the right decision about solutions to your debt problems.

    What is a debt settlement? A debt settlement is just that – the settlement of your debts. This settlement involves a negotiation with your creditors to reduce the amount of the debt you are required to pay off.

    A debt settlement will in almost all cases involve paying the settlement amount in a single instance. In most cases the collection agency representing your creditor can accept less money from you than you owe to settle your debt. We have seen collection agencies settle debt for as little as 50% of the amount that was owed. That being said, regardless of whether it is the collection agency or a creditor that is willing to consider a debt settlement, they will want to receive the settlement money in full.

    Often consumers won’t have the money to pay the settlement in full. This has spawned an entire industry of debt reduction companies. These companies will accept monthly installments from you over time with the promise that once you have remitted enough money they will settle your debts. This is a risky proposition. Instead, do your due diligence because if you are remitting to a debt reduction company and they go out of business in the future your money may not be secured.

    There are several reputable companies out there that offer financial consulting and can help you to settle debt with your creditors without risk to you. These companies, experienced with consumer debt solutions, will represent you fairly and help you establish a plan to settle your debts without you giving money to them on a monthly basis.

    Avoid being taken advantage of by doing research and avoiding companies who bill themselves as debt reduction specialists or companies. Look for positive reviews from consumers and see how much of an online image they have established to ensure that you are working with a professional organization that has staying power.

    How will a debt settlement affect your credit? As with any debt solution, a debt settlement is recorded on your credit report and may bring down your score. That being said, if you are considering debt settlement the impact on your credit rating is likely no worse than the damage already done. Once you have settled your past bad debt you can begin the process of rebuilding.

    If you are considering a debt settlement as a way of getting rid of your debt, there are a number of things to consider, but the most important is the company itself. Just because a company promises to settle your debts it doesn’t mean that they will do so the right way. Make sure that you do your research and make inquiries. Working with a trustworthy debt settlement company will make all the difference, keeping you protected throughout the process.

    If you need help getting out of debt or would like to find out more about your debt settlement options, please contact DebtCare Canada today by calling 1-800-890-0888.

  • When to Use Online Financial Calculators

    Technology has brought us so many online tools for financial planning; there are online financial calculators for literally everything. Mortgage financing/refinancing, debt reduction, car payments, interest, and budgeting are all things that online financial calculators can help manage.

    Online financial calculators are very useful when planning anything from a new mortgage to calculating the interest that you are paying on credit cards. Of all the online financial calculators, mortgage calculators can be used for the most diverse range of financial calculations.

    What’s really cool about mortgage calculators is that you can use them to not only calculate monthly payments on a mortgage but also on loans.

    If you have a lot of debt for example, here is how you can use a mortgage calculator to create different financial scenarios if you were to consolidate:

    1. Input your total debt into the mortgage calculator.
    2. Set the term and amortization to 5 years – this will give you an idea of what it would take to get you out of debt within 5 years.
    3. Calculate your payment based on an approx. interest rate that you believe best reflects the average interest rate that you would pay if the bank gave you a loan to consolidate your debt. A general rule of thumb would be to use 10%-15% if your calculation is based on a bank’s loan rate.
    4. Now do the same calculations with the interest rate set to zero.

    Completing the above steps will enable you to see how much you would have to pay monthly if you were to consolidate debt at zero percent interest vs. full interest.

    One risk though when it comes to using online financial calculators is that calculations may not be accurate once the time comes to seek out a credit product or debt solution that fits with the estimates that you have calculated. For example, what if you have made a calculation based on being out of debt in 5 years but then your bank offers you a line of credit? A line of credit may leave you with a low minimum monthly payment, but may take much longer than your estimate to pay off because it is like having one giant credit card.

    If you are using online financial calculators to try to come up with financial solutions because you are in debt, sometimes it makes sense to use them with the guidance of a financial professional/consultant.

    Hiring your own financial consultant can enable you to have a professional review your budget, credit and finances, and then work with you to use online financial calculators to build some viable debt consolidation scenarios. A financial consultant will likely have the resources to help you put your plan into motion.

    For more information about online financial calculators or if you need help dealing with your debt, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • What is a Trustee?

    What is a trustee? A trustee is a person who holds property, authority, or a position of trust or responsibility for the benefit of another. In the case of an “estate trustee” the trustee could be a company or an individual. An estate trustee in the case of an individual who dies or is incapacitated,  represents the deceased or the incapacitated individual.

    There are other types of trustees though in specific matters that have different responsibilities and are appointed by the government to administer an estate according to legislation.

    What is a trustee in bankruptcy? In Canada, a trustee in bankruptcy is an individual or a corporation licensed by the Superintendent of Bankruptcy to hold in trust and, subsequently, to distribute bankrupt’s property among the creditors in accordance with the Bankruptcy and Insolvency Act (BIA). The bankrupt and all other persons holding the bankrupt’s property must transfer the property to trustee until he or she can determined how the estate shall be administered. “Property” includes income and assets. The trustee may also assist individual in preparing and submitting a consumer proposal to creditors.

    Where an “estate” trustee would act to carry out the intent of the deceased or in the best interest of the incapacitated individual, a “bankruptcy” trustee acts in the best interest of the bankrupts creditors and it is his or her obligation to recover as much money from the estate as possible for the benefit of the creditors.

    In Canada, consumers and businesses often find themselves confused, pondering the question “what is a trustee?” and many get the impression that the trustee in bankruptcy represents their best interests. This is because so many trustees aggressively advertise to people who have financial problems. They do this because they aren’t profitable unless they have individuals and businesses approaching them to file for bankruptcy or to file consumer proposals. These advertisements often promote debt solutions, debt settlements and debt help. When you visit the trustee he or she will often only offer one of two choices: a bankruptcy or a consumer proposal. Inevitably the question is who does the “debt solution” benefit in the end?

    In the case of a bankruptcy the trustee is paid a “tariff” a “fee” from the proceeds of the bankrupt estate. In the case of a consumer proposal the trustee receives remuneration based on a percentage of the amount of the consumer proposal that he or she negotiates.

    When you visit the trustee he or she will require that you provide complete disclosure of your income and assets. If the trustee determines that a consumer proposal is the only legal remedy to your debt, he or she will then determine the amount of the consumer proposal based on your ability to make monthly payments over 4-5 years. For example, if you owe $20,000 and the trustee determines that you can afford to repay your creditors at 100 cents on the dollar, on a monthly basis over 5 years then the amount of the consumer proposal will be $20,000, 100% of the debt owed. If the bankruptcy trustee determined that you can only afford to repay $13,000 over 5 years then your consumer proposal would be 65% of the debt owed. The challenge is that the smaller the consumer proposal, the less remuneration to the trustee, which provides an incentive to the trustee to arrange larger proposals. In addition and as we mentioned earlier the trustee is required by law to secure the greatest amount of repayment possible for the benefit of your creditors.

    It is for this reason that approaching a trustee directly to discuss your debt can be a risky proposition. In the past 5 years, this has spawned new industry: debt consulting. Debt consultants are familiar with the BIA and are able to evaluate your estate to help you determine which option is right for you and they can even negotiate on your behalf with bankruptcy trustees.

    This provides the insolvent person or debtor with a number of benefits.

    1.      Because the debt consultant is hired by the debtor, he or she represents the debtor`s best interests, not the creditors.

    2.      The debt consultant can interpret financial information and often negotiate a better deal than the consumer or business would have achieved had they visited the trustee directly.

    3.      The debt consultant can request evaluations of assets like homes and vehicles to ensure that the trustee does not over-estimate an asset resulting in you paying more in a consumer proposal or bankruptcy.

    4.      The debt consultant can work with you to come up with a financial plan to rebuild your credit and finances after a bankruptcy or a proposal.

    A bankruptcy or proposal offers many benefits and can provide a person who has a financial problem with immediate debt relief, including stopping collection action like a wage garnishment. Like anything else, researching a solution to a financial problem is truly “buyer beware” and if you are considering an avenue for debt relief like a bankruptcy or consumer proposal, we do not recommend that you do so unrepresented.

    For more information about a trustee in bankruptcy or if you are struggling with a financial problem please visit www.debtcare.ca or contact Michael Goldenberg at DebtCare Canada by calling 416 907-2582 for more information.