By Sandra Wolverton, BIA Insolvency Counsellor
For people with minor or even moderate debt, the combination of a structured financial plan and a few temporary sacrifices can go a long way toward eliminating their burden. One less dinner at a restaurant. A few nights playing board games at home instead of going to the movies. Avoiding the mall for a few months. A few small sacrifices can ultimately add up to a big reward.
But what about people dealing with extreme levels of debt? Is it reasonable to reduce their discretionary spending to nearly zero for an extended time-frame in hopes of achieving a financial fresh start?
Aggressive Debt Repayment
I recently spoke with a financial planner who told me about a young couple he'd been helping. They earned a decent income but struggled with an overwhelming debt burden. He suggested they consider an aggressive debt repayment strategy which could free them of their several credit cards, loans and lines of credit in eight years.
This plan required every single dollar from the couple's discretionary spending bucket go toward paying down their debt. That meant:
Essentially, their life would be a repeating cycle of: Wake up, go to work, come home, make dinner, watch TV, go to bed, repeat. Could you imagine doing that every day for nearly a decade?
I asked the financial planner whether he'd considered suggesting a Consumer Proposal instead.
Not only would this help the couple achieve the same goal (becoming debt free) within five years, but their monthly payments would also be lower – leaving ample room to enjoy their lives. But more importantly, they could still contribute toward their emergency savings and retirement – necessary measures to prevent falling back into the debt cycle and position them for long-term financial success.
Also, given the significant timeline difference, a Consumer Proposal even makes sense for their credit rating. After eight years of aggressive debt repayment, the couple might expect to end up with average or slightly below average credit. With three extra years for responsible debt use, they could be well on their way to building their credit back up and have a meaningful nest-egg to show for it.
Choosing the Right Option
As with our couple above, a Consumer Proposal can often be the fastest, least expensive, least stressful and most productive option for people facing overwhelming and unmanageable debt. But every situation is different, so how do you know whether that path is right for you?
During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your entire financial situation and help you understand your options. They may advise a Life-Changing Debt Solution such as a Consumer Proposal or Bankruptcy – or they may suggest other measures, such as creating a better budget, working informally with your creditors or something else entirely. No matter what they advise, you can trust your Licensed Insolvency Trustee to offer helpful, unbiased insights so you can make an informed choice that's right for you.
Based out of Victoria, is an Estate Manager at MNP Ltd. To learn more about how MNP can help, contact our local office at 1.877.363.3437 or toll-free at 310.DEBT (310.3328).
This article was originally written for, and published by, MNP. To view the original post, click here.