Archived — Dealing with Credit (3)

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I'm in over my head. Where do I go for help?

Remember the trouble signs. If you can relate to one or more of them, it's time to stop and reorganize your finances. Take action before creditors start taking action.

Your first step is to gather all your information: income, expenses, debts, and which debts are secured and by what means. You need to know exactly what you're up against.

Many jurisdictions have not-for-profit credit counselling services that will review your financial situation with you and suggest options. They may be able to organize a creditor-approved debt repayment program. Some of these service providers may charge a small user fee.

Visit http://www.canlaw.com/credit/counselling.htm for a list of provincial and territorial non-governmental credit councelling organizations.

If a not-for-profit credit counselling service is not available in your area, look for a credit counselling business that charges a small fee. Ask what they will provide for the fee, and if you can see a sample of what they can do for you. If you have questions, contact your provincial or territorial consumer affairs agency.

Other options:

  • Talk to your creditors and try to reschedule your payments.
  • Consider a debt consolidation loan. Interest rates are typically set at the prime rate plus a percentage determined by the lender, which is usually less than a credit card rate. You may need a cosigner or other security, or both.

Loan brokers

Consumers may turn to loan brokers who often advertise in the classified sections of newspapers and on television. Loan brokers may charge fees in addition to interest. Most jurisdictions' cost of borrowing legislation would consider these fees to form part of the interest rate, which may not exceed 60 percent as allowed under the Criminal Code.

Advance fee loan brokers

Some loan brokers charge advance fees to obtain or provide a loan for a consumer. Advance fee loan brokers also often advertise in the classified sections of newspapers and on Internet sites.

It is illegal in some jurisdictions to charge a fee, whether it's called a "deposit," "insurance" or just an "administrative fee" to borrowers before they get the money. Some borrowers have been known to send fees ranging from $200 to $1500 to companies and never received their loan. They ended up with even less money to work with.

Other potential sources of money

You may encounter various unconventional businesses that offer to help you in your time of financial need. These may include: storefront loan offices, cheque cashing services, and the like. These are often more expensive than other alternatives. Most likely, you'll be charged a high interest rate and/or high fees. Consider other options. You may be better off with a loan or line of credit.

Credit repair companies

Credit repair companies claim to act on consumers' behalf to improve their credit file — fast — but for a fee. This fee is often as high as $1500. In reality, no credit repair company has the power to change or erase accurate information in a consumer's credit file — information such as a history of late payments. The only way to improve a poor credit rating is to work with your creditors and show that your payment habits have improved.

The Perils of cosigning

Be cautious if someone asks you to cosign a credit contract. Cosigning carries serious obligations. You are promising a financial institution that you will pay off the loan if the other person is unable to do so. Could you really afford to pay the entire amount yourself?

Review your friend's or relative's position. There is probably a good reason why the financial institution requires a cosigner. You'll probably discover the applicant is not a good credit risk in their eyes.

If the person doesn't keep up payments, the outcome could be a court judgement against you for the amount of the debt owing. This could affect your credit record and your own budget.

A word about bankruptcy

Bankruptcy should be the last alternative if you cannot meet your financial responsibilities through affordable payments over a specific period of time. Bankruptcy is a serious step with many consequences and it may not be the solution to your difficulties in trying to manage your finances. When you declare bankruptcy, your property minus any exemptions under provincial or territorial law is given to a trustee, who then sells it and distributes the resulting money among your creditors. With certain exceptions, you are no longer responsible for any debts you have accumulated.

Immediate effects of bankruptcy

  • Certain debts are erased entirely: credit card, medical and utility bills, etc.
  • Other debts remain: child support, alimony payments, etc.
  • Student loans less than 10 years old are not discharged in bankruptcy.
  • You must give up assets that are not exempt under provincial or territorial law, which could include personal items and furnishings. You may be able to keep your car if you can prove you need it for work. Laws differ in each jurisdiction. Be careful to check what is exempt for you.
  • Unsecured creditors can no longer take legal steps to recover your debts. They can no longer threaten action against you.
  • To declare bankruptcy, you must pay a filing fee as well as a fee to the administrator who handles the bankruptcy.

Future effects of bankruptcy

  • Any future credit you obtain may be more expensive.
  • You may have trouble getting bonded, a requirement for certain jobs.
  • Your bankruptcy remains on your credit file for a number of years, depending on your jurisdiction.
  • Bankruptcy may result in negative consequences in other areas of your life including the attitudes of your family, friends and community.

For more information, go to Industry Canada's Office of the Superintendent of Bankruptcy Canada Web site (www.osb-bsf.ic.gc.ca), or contact the nearest Office of the Superintendent of Bankruptcy Canada or your provincial or territorial consumer affairs agency (in the Government listings of your telephone directory).