By Christi Posner
Even if you have tons of debt in collections, there is help available without paying high interest rates for a bad credit loan. Canadian credit and debt counsellors can show you how to fix your bad credit and get out of debt for good.
Bad Credit Happens – Rebuild Credit and Become Debt Free By Knowing What Caused It
When you have bad credit, you can become debt free and rebuild your credit score without resorting to high interest debt consolidation loans. Simply consolidating your debts into one monthly payment doesn’t fix the real reason we got into debt in the first place. If you consolidate debt without looking at your bigger picture, you may find yourself even further in debt a year or two from now.
First, it is important to recognize that your bad credit and debt isn’t the problem. In fact, your debt is just a symptom of the problem.
Debt and bad credit scores stem from something bigger, something deeper. Sometimes they are a result of a job loss or illness, causing you to use credit or not be able to pay your bills on time. Other times debt comes from not knowing where we stand with our money, and extending ourselves too far.
Ask yourself, why are you really in debt?
3-Step Process to Get Out of Debt With Bad Credit In Canada
If you live in Canada, have bad credit and are ready to get out of debt once and for all, here are the best things you can do:
- Know your debt starting point with a free credit report.
- Find out how much you can truly afford to put towards debt with a personal budget plan.
- Learn your debt options and solutions so you can make an educated decision and choose what's best for you and your family.
The first step to getting debt relief is to get a free credit report so you can check over your credit history and who you owe money to. You can order your own credit report once a year for free. We also recommend that you get your credit report from both credit bureaus in Canada because the information on each report may be different.
Once you have your credit report, read it over and check for any mistakes with your credit history. Write down a master list of who you owe money to and how much. If the amount seems incorrect, call the creditor to inquire how much you currently owe.
Now that you have created a list of who you owe money to and how much, it’s time get out of debt by creating a personal budget plan. The goal is to figure out how much you can truly afford to put towards your debt each month without ever re-borrowing in the future.
Use our free, interactive budget calculator spreadsheet to write down your monthly take-home income and expenses. Leave the debt payments out of the budget until the very end, so you can see how much you truly have left over each month to pay off debt.
To find out which debt solution is right for you, you will need to understand the different debt help options that are out there. You must also figure out how much money is left over in your budget, after you’ve written down your income and expenses. This shows how much you can truly afford to put towards debt without re-borrowing.
There are many ways to get one easy payment to pay off debt, even with a low credit score:
The Typical High Interest Loan for People With Bad Credit
You can stop your Google searches here. Unfortunately there are no “loans for bad credit” or “short term loans for bad credit” in Canada without high interest rates. High interest loans are one way for people with bad credit to consolidate debts into one monthly payment, but you risk staying in debt for years longer than necessary. A good portion of your payments will go towards interest, and not towards actually paying down your debt.
Instead, consider other ways to pay off your debt with one simple payment each month.
Get Debt Relief and Rebuild Your Credit Rating with a Debt Management Program
Debt Management Programs with a non-profit credit counselling organization will help rebuild your credit and give you that sense of debt relief you are aching for. They consolidate your debts into one monthly payment, which allows you to pay back 100% of your debt without all that interest.
By paying back what you owe through a debt repayment program, your credit score will rebuild faster because of the special arrangement that non-profit credit counselling agencies have with the two credit bureaus in Canada, Equifax and TransUnion.
When comparing to a high interest consolidation loan, a Debt Management Program means that you don’t have to borrow more money to get out of debt. Not only do you become debt-free faster, but you will rebuild your credit faster as well!
Consumer Proposals and Bankruptcy – Can Your Credit Recover?
Filing a consumer proposal or declaring bankruptcy are legal ways in which some people can consolidate payments and repay a portion, or none of their debt. Often these options have people debt-free faster than handling debt on their own or with a costly personal loan, but they can prevent them from fixing their credit for a long period of time. Information from your consumer proposal or bankruptcy is not removed from your credit report for years after completion.
Let a Non-Profit Credit Counselling Agency Help You Fix Bad Credit and Get Out of Debt Without a New Bad Credit Loan
If you’re unsure which debt repayment solution is right for you, but you know you shouldn’t apply for another high interest, bad credit loan, let a non-profit credit counselling agency help you consider your options. It is possible to get out of debt and fix your bad credit in a way that works for you.
Bad credit happens to good people, we know that. Remember that you are not alone and you are not stuck with your debt forever. There is always a way out, even if your credit is bad. Credit Counsellors are here to help, just ask!