Debt is difficult to live with. It can feel as though there is a weight on your shoulders at all times. It’s overwhelming and impacts our everyday lives. Many Canadians struggle when it comes to talking about their financial hardships. Because of this, they don’t confront their debt until it becomes out of control or it’s too late. But what if we told you there was a way you could eliminate your debt? Better yet, a way to eliminate your debt and improve your monthly cash flow, without claiming bankruptcy.
Regardless of how large your debt is, there is a way out. With debt restructuring, you could eliminate your debt and keep it paid off. As long as you are dedicated and willing to put in the work, you can kiss your financial woes goodbye with a sold debt restructuring strategy.
What is debt restructuring?
Simply put, debt restructuring is a proposal you create made out to your creditors. You offer to repay your debt by renegotiating the terms of your contract that you originally agreed to. When you do this, you’re often paying back a reduced amount and on terms that work better for you.
When you’re overwhelmed with debt, you may need to start picking and choosing which bills to pay. If you have gotten to this point with your finances or you’re struggling to make all your payments, now is the time to consider debt restructuring. Missing payments can lead to additional fees or in more extreme cases legal action taken against you.
However, if you reach out to your lenders and creditors early on, they may be able to provide you with debt relief options. Many people see their creditors as the enemy. But they will only become the enemy if you stop fulfilling your financial obligations and don’t ask for help.
Regardless of what type of debt you have, you can use a debt restructuring plan to help pay off and eventually eliminate that debt.
What is the difference between debt restructuring and debt refinancing?
It’s important to note that debt restructuring is not the same as debt refinancing. The big difference between the two is that debt restructuring is renegotiating the terms of an existing contract. Debt refinancing is when you create an entirely new contract with different terms. Debt refinancing is when you pay off or replace your old debt with new debt. Moving it from basket “A” to basket “B”.
An example of debt refinancing would be using a home equity loan to pay off a credit card. A person may choose to do this because interest rates on a home equity loan are typically much lower than a credit card. Therefore by debt refinancing, they are able to roll multiple debt payments into one monthly payment to help increase cash flow. However, when you refinance your debt you often extend the period of time that it will take you to pay off your debts overall which will cost you more interest in the long run. Further to this, you are taking highly negotiable unsecured debt, and securing it against your home, while giving up equity. Something to think about.
How does debt restructuring work?
Debt restructuring works by renegotiating the terms of your existing contract with your lender. You do this so you can make it easier for yourself to pay off your debts.
In fact, it is as easy as this 5 step process:
- You reach out to your lender
The first step is usually the hardest. Once you realize that you are unable to meet your financial obligations, you’ll need to start the debt restructuring process. You’ll need to begin by contacting your creditor or lender to explain to them your current financial situation. Your lender may give you options, and usually, debt restructuring is one of them. It’s best to reach out to your lender first before they reach out to you. This shows that you are aware of the issue and are willing to put in the work to fix the problem.
- You wait for a response
A lender is not obligated to give you any help and may not change the terms of your contract. If this is the case and you miss a couple of payments, your account could be sent to collections or you could be sued for your debt. However, it never hurts to ask for help. It may take some time for your lender to come up with a response, so don’t panic. In the meantime, think of ways you can budget your finances more effectively.
- You weigh your options
If your lender offers you help, you’ll need to weigh out your options. Your lender may offer you temporary hardship assistance or a restructuring plan. You’ll need to review the contracts and consider the pros and cons of each to ensure you’re picking the best option.
- You negotiate
Before you accept an offer, you may be able to negotiate some of the new terms. As an example, you can attempt to get a lower payment amount, have the fees waived, or the term of your contract increased.
- You accept the offer
Once you and your lender have come to a compromise, you can agree to the new terms of your loan. You’ll do this by formally accepting the terms and signing the agreement. You will then be obligated to comply with the new terms and continue paying off your debt.
What types of debt restructuring options are there?
While the process is the same, there are a few different types of debt restructuring strategies you can use to help you pay off your debt.
These are three main types of debt restructuring:
Consumer proposal: A consumer proposal is when you follow the formal procedure under the Insolvency Act. An offer is made to pay off the debt interest-free over a period of up to 5 years and usually, the principal amount owing is also reduced. With a consumer proposal, your assets are fully protected, and no legal action by your creditors who are included in your proposal.
Informal Proposal: An informal proposal is when your debts are reduced by negotiating directly with your creditors outside of the Bankruptcy and Insolvency Act. Rather than making monthly payments, the agreed-upon payment is made as a lump sum.
Bankruptcy: This is when your consumer debts are extinguished through filing bankruptcy. We only ever recommend bankruptcy as a last resort. To learn more about reasons to avoid bankruptcy, click here.
How effective is debt restructuring?
At 4 Pillars, we have helped thousands of people create a plan to pay off and eliminate their debt using the power of debt restructuring. Everyone’s battle with debt is different, which is why we review all your options and customize our services to your needs specifically. We can help you through the process and help you achieve the best possible option to eliminate your debt for good. We also help our clients avoid bankruptcy and find solutions that won’t hurt their finances long-term.
If you’re ready to start living a debt-free life, book a free consultation with us today. Give us a call at one of our three locations across Central to Northern Ontario. You can reach our Muskoka & Parry Sound office at 705-640-0187, our North Bay office at 705-980-0158, or our Sudbury office at 705-806-1252. Let us help you take the weight of debt off your shoulders today!