Canadians are filing personal insolvencies at the highest rate in over a decade. According to the latest figures from the Office of the Superintendent of Bankruptcies, consumers filed over 13 thousand consumer proposals and personal bankruptcies in October 2019, which is a 13 percent jump from the same month a year prior. These statistics are always troubling, and moving forward we at BNA Debt Solutions see nothing coming in the next quarter to reverse the tide, however, Canadians teetering on the edge of insolvency do have options to think about when it comes to protecting their finances and assets they’ve worked so hard for.
One of the key factors in Canadian insolvencies in the past few years has been over-borrowing. Canadian banks are still offering low interest rates, which lead consumers to see loans and lines of credit as “cheap” sources of supplementary cash in addition to their income. Regardless of how low interest rates are in our country, debt always has to be repaid, and it won’t necessarily be at a low interest rate, creating an ever-deepening hole to climb out of.
Debt Consolidation: One Payment, the Same Debt
Debt consolidation loans are appealing to Canadian debtors as it gives the illusion that all of their debts are being bundled in one, easy-to-manage payment at a lower interest rate. While your debts may all be able to be paid under the loan, with one payment to make, there’s absolutely no guarantee that it will be, or stay, at a lower rate. Lenders set interest rates based on your past payment and credit history, which can drastically alter the advertised rates, and while a lower interest rate is always preferred, it’s not the fundamental reason Canadians are in debt, or why they have come to visit our trustees at BNA Debt Solutions.
Even if your loan repayment starts off with a low interest rate, a lender can make the move to increase them over time. This is a common tactic that occurs after the holidays when Canadians might overspend over the holidays and panic when their credit card bills arrive. Lenders will offer a low introductory rate, and then raise them a few months later. Alternatively, they may ask for security such securing the loan against your home. It is never a good idea to risk your families home for unsecured debt. There are better solutions.
On paper, it often looks like you have lower monthly payments than before, but this is always due to longer terms of repayment. This means you’re paying smaller payments for longer, accruing more interest as time marches on. It is imperative for anyone considering a debt consolidation loan to remember that it won’t wipe out your debt, only rearrange it.
Is Your Home Worth It?
Banks, second tier lenders, and riskier options like home equity lenders, will often require your assets as collateral. For many Canadians, this means their houses, vehicles, or other properties and valuables that they have worked so hard for their entire lives. Combine this with any potential rise in interest rates, and you have suddenly found yourself in a very tight position if you aren’t able to make your payments. Bad things happen to good people, but your lender will still require their payments. So if you or someone in your family becomes ill, loses their job, or is otherwise unable to earn income, your home and assets are left open to massive risk.
Debt by Any Other Name is Still Debt
At the end of the day, debt won’t wipe out debt. It’s the age old adage of “robbing Peter to pay Paul” and borrowing to repay existing debt won’t move you forward, it will just change the road map. Your best solution to eliminating multiple payments, collection agencies and mountains of bills is to come in and talk to our Licensed Insolvency Trustees at BNA Debt Solutions. Through a consumer proposal, we make an agreement between you and your creditor(s) that can see you paying back just a fraction of what you owe. This means you have the opportunity to stop your payments in their tracks, instead of finding a new way to borrow. To start eliminating your debt, instead of just rearranging it, call us today for a free consultation.
