Can’t Pay Your Debt? Here’s What to Expect

There is a common path for most people who struggle with debt. First, it becomes clear you cannot make bill payments. Then, you start to rack up interest and late fees. Before long, you receive constant calls from collections. By this point, balances can get so out of hand that you might wonder if you will ever pay off your debt.

That debt struggle can make you feel hopeless. But you do have options. Let’s walk through the debt process and show how help from a Licensed Insolvency Trustee (LIT) can let you overcome your debt and find a fresh start.

What Happens When You Can’t Pay Your Debt?

First, let’s remove the common stigma around debt. Yes, everyone must take personal responsibility for their finances. But in many cases, debt is due to unfortunate life events far outside your normal control. Acts of god, unexpected injuries, and relationship breakdowns can all play a part. We can’t change those circumstances, but we can watch for some of the common signs and prepare for some likely outcomes.

Interest payments

As expected, when you miss a credit card payment, you must pay interest on the amount you owe. But things get much more difficult if you fail to make the minimum payment regularly—your credit card company might increase your interest rate. A higher rate makes it much harder to keep up with your payments. If you are in this situation,  contact your credit card provider or review your agreement.

Late penalties

Next, failure to pay can result in late fees and penalties. Your bank might also charge an insufficient funds (NSF) fee if payments do not settle. Those penalties pile up, and they will not stop until you pay your debt in full. If you wait too long to pay your debt, you risk losing access to crucial utilities (e.g. your phone or electricity).

Changes to your credit score

Soon, the debt starts to affect your credit score. Even one late or missed payment can appear on your credit report (and sometimes stay on your credit report for up to six years). A bad credit score can make it more difficult and more expensive to borrow money in the future.

Collection calls

Once a bill has gone unpaid for 120 to 180 days, your debt can go to collections.1 Usually, your creditor will send a letter and alert you of the late payment beforehand. Still, even with advanced notice, a call from a collector can feel intimidating as they may threaten you with legal action. Once your account is sent to collections, it will stay on your credit report for up to six years.

If you received calls from a collector, know your rights. You can refer to the Government of Canada website for tips on dealing with debt collectors.

What to Do When You’re Struggling to Pay Your Bills

in the midst of the debt process. What should you do? Here are some key steps to help get your debt under control:

1.     Accept the situation

While you might want to bury your head in the sand and ignore your debt, that won’t make it go away. Instead, it will make your debt situation worse. The only way to overcome your debt is to address it head-on. As tough as it might be, gather your credit card bill and educate yourself on your financial situation.

2.     Review your budget

If you have a budget, review it and see what expenses you can cut. For instance, you could remove some subscription services or memberships for a time. It’s not forever, just until you can get back on track. Or maybe there is a roommate who can help you with the rent? You can also sell your car for fast cash and use public transit.

If you don’t have a budget and don’t know how to make one, consider credit counselling. A credit counsellor can work with you to increase your financial literacy and improve specific money skills (e.g. budgets or managing credit).

3.     Bring in more money

While cutting non-essentials is an important part of debt management, you can also look for opportunities to make more money. Ask if you can take on more hours at work or consider starting a side hustle. Apps like Fiverr, Taskrabbit, and Rover can help you find work on the side.

4.     Avoid more debt

, you can’t take on more debt. Stop the credit card use or any lines of credit. Those high-interest debt types often only exacerbate the issue. If you can’t pay your bills without the help of other debt, then it is time to seek advice and debt relief.

How a Licensed Insolvency Trustee Can Help

There are several avenues to receive debt guidance. But the best option is to work with a Licensed Insolvency Trustee (LIT). LITs are debt professionals, and they are the only advisors in Canada authorised to administer Consumer Proposals and Personal Bankruptcy. No matter where you are on your debt journey, an LIT can give you the federally-backed support and guidance you need to overcome your debt.

Consumer Proposal

If you struggle to keep up with your bills and your debt is under $250,000 (not including your mortgage), your LIT might suggest a Consumer Proposal. In a proposal, you work with your LIT to create an offer to your creditors to pay a portion of your debt, extend the time to pay, or both. You have up to five years to repay your debt.

Personal Bankruptcy

Filing for Bankruptcy is not something anyone wants to do, but sometimes it’s the right choice. If you’re insolvent, Bankruptcy might be your only option. When you declare Bankruptcy, your LIT will sell some of your assets to raise money to pay off your creditors. In exchange, you’re discharged from most of your unsecured debts.

Get a Free Consultation With Chase & Associates

We understand that dealing with debt can feel stressful and isolating, but you don’t have to do it alone. You can break free from the debt cycle. At Chase & Associates, we are here to help you through your challenging time. For a free evaluation, call 1-866-317-8331 or fill in our online form, and we’ll contact you.