Canadians are indebted more than ever before. It is estimated that for every $1 of disposable income, consumers owe $1.74. That is immense, and it is only getting worse. Consumers are spending more, saving less, and relying on credit for some essential purchases (mortgage or rent).
Soon, the snowball effect impacts your life and now your credit goes down the tubes. Before you know it, you are underwater and you are unable to catch your breath. At this point, your options become severely limited. You won’t have a lot of financial resources, and even most lenders will be cautious of offering their money to people with bad credit. There are still loan options available for those with bad credit, but these will only get you out of an urgent pinch and won’t solve your long-term debt problem.
The problem of how to get out of debt with bad credit is a tricky one. Fortunately, there are solutions available for tackling your debts now before it metastasizes into something impossible to eliminate from your life.But how can you relieve your debts when you have bad credit? Here are nine tips on how to get out of debt with bad credit:
1. Debt Consolidation
Debt consolidation is one of the best ways on how to get out of debt with bad credit. This is becoming a major trend in personal finance and in credit markets across Canada. With too many households taking on more debt than they can manage in the fallout of the global economic collapse, a lot of consumers are underwater and cannot catch their breath.
For a growing number of Canadians, the only potential solution is debt consolidation. This is when you take all your debts and put them into one giant pile. You make payments toward this debt and you are soon debt-free.
2. Home Equity Loan
In today’s economy, Canadians are house-rich but cash-poor. Put simply, they have a lot of equity in their homes but not enough money in their bank accounts. As a result, homeowners turn to their credit cards to make mortgage payments, pay the energy bills, and put food in the refrigerator.
Eventually, this way of living catches up and, before you know it, you are deeply in debt, your interest payments are through the roof, and your credit score takes a beating.
Since you have accrued a lot of equity in your home, then you could consider a home equity loan to pay off your consumer debt. This is one of the best ways to become debt-free. It is important to remember, however, that you should not treat your humble abode as a personal ATM.
3. Settlement with Creditors
Creditors want to get their money back, and they will employ every measure to ensure they get it. This might entail even losing, let’s say, 20 percent of their investment.
So, lenders might want to settle with borrowers. You might owe a creditor $12,000 and you have admitted that you cannot repay this amount. The lender will work with you and come to an agreement, which entails paying back $7,000 over a period of three years.
Many Canadians think that creditors are blood-tooth hounds without any reason or logic. This is untrue. All you need to do is be honest and tell them the truth. In return, they will come up with a plan.
4. Personal Bank Loan
How is your client history with the local branch? If you have a tremendous track record, then why not apply for a personal loan from the bank? You can use this loan to repay your debts.
Since the financial institution wants to retain its clients and ensure you stay a customer for the remainder of your lifetime, it will come up with reasonable terms and conditions of the loan.
5. Debt Management Plan
A debt management plan is a fantastic way on how to get out of debt with bad credit. Credit counseling services are everywhere – and for good reason. One of the services these establishments offer is a debt management plan.
The financial experts will comb through your finances, check your budget, calculate your debts, and then propose a series of steps to take to pay off your debt over a period of time.
6. Lower Your Interest Rate
This ties into a previous point, but if you contact your creditors and inform them of your situation, then they will work with you and try to ensure you can repay the debt. One measure they could offer is lowering your interest rate or freezing it at zero for one, two, or three months.
It does vary based on the lender, the type of debt, and the amount. Nevertheless, creditors want to get their money back, so they will try to ensure you are making a concerted effort to do so.
7. Keep Track of Your Spending
In order to get out of debt with bad credit, considering how much we spend in any given week or month, it is easy to lose track of what and how much we are spending. From the $5 morning latte to the monthly Netflix subscription to weekly trips to the pictures, we are spending a lot.
Unfortunately, this is how you get into trouble. Therefore, keep track of your spending by creating a budget and sticking to it.
8. Spend Less Money
Is it easier said than done to spend less money? Of course, it is! Every day, you face a barrage of companies trying to get the money in your wallet, bombarding you with advertisements and the latest gadgets that will satisfy the chemicals in your brain.
That said, you need to withstand these corporate blitzkriegs and try to endure life without certain goods and services. To stay out of debt, you need to spend less on goodies and just on the essentials (rent, food, energy, car, etc.).
9. Put Your Credit Card on Ice
The credit card is an instrument of your downfall. The 3×5 piece of plastic in your wallet can cause an insurmountable amount of damage. Rather than fall to the coquettish nature of credit, leave your credit card at home and use cash for everything. Once you see the banknotes in your wallet, you will start to realise that you should not be wasting your hard-earned money on frivolous items, like $15 avocado on toast.
With interest rates at historic lows, it is easier to get into debt because credit is more available than ever before. But what happens when rates inevitably go higher? Well, you will be saddled with astronomical levels of debt that may become impossible to repay. Nobody wants to live with a noose around the neck. So, pay off your debt now and stay debt-free for the future. That is the only way to happiness.