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Drowning in debt?

The last two-plus years have been a struggle for many Canadians dealing with an economic crisis in which thousands lost their jobs and the means to manage everyday expenses, from mortgage payments to groceries. While some shifted into thrift mode, others sought to prop up the ailing economy by spending their way out of the recession. Household debt reached a record high in 2010 and the strain is starting to show as people juggle fistfuls of credit cards, edging closer to financial disaster.

"Financial problems don't go away on their own so if you're experiencing problems, now it the time to talk to somebody and get back on track," says Doug Hoyes, a bankruptcy trustee and co-founder of Cambridge, Ont.-based Hoyes, Michalos & Associates.

If you're struggling to keep up with minimum payments, watching debt mount or using debt to finance debt, it's time for a reality check. It's key to address debt before the critical point of bankruptcy. "The sooner people get to us the better because they'll have more options," says Hoyes.

One option is a debt consolidation.

Credit cards and consolidation
Most people look to debt consolidation after racking up several high-interest credit cards: The idea is to roll the debt together in one lower interest loan.

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There are 69.7 million Visa and MasterCard cards in circulation in Canada. A 2010 survey by The Strategic Counsel found one-third of households carry balances. The latest data from Equifax Canada shows more than half a million people are at least 90 days behind on payments. The sharpest increase in delinquencies concerns credit card and sales finance purchases for furniture or electronics.

This buy-now-pay-later mentality puts people in a precarious position, says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada in Toronto. "It really is a death spiral."

Thanks to new rules prompting credit card statements to feature how long it will take to pay off debt with only the minimum payment, people have a growing awareness of the long-term repercussions of high-interest credit. In turn, a recent Manulife Financial poll reveals that for a record number of Canadians -- nearly 30 per cent -- tackling consumer credit is now a top priority.

Benefits of debt consolidation
Debt consolidation has several benefits, says Hoyes:

  • Replacing many payments with only one payment is easier to budget
  • If you qualify for a lower interest loan, you'll reduce overall interest payments
  • Lower interest rates and/or extended terms should reduce total monthly payments
  • With more money going towards the principal, you clear debt more quickly
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-- Posted February 18, 2011
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