Debt consolidation is a particularly interesting service. It is primarily used by people who are struggling to manage their finances or have excessive personal debt. In some circumstances, debt consolidation is a service used by businesses. So, how does debt consolidation really work?
How to Do Debt Consolidation
Debt consolidation is a process of, perhaps unsurprisingly, consolidating your debts. It is performed with a person licensed to perform the process.
Who Does Debt Consolidation?
The professionals responsible for offering debt consolidation services are referred to as Licensed Insolvency Trustees (LIT). They are trained to advise and educate individuals about their options for handling debt. Furthermore, they are licensed to perform debt consolidation, bankruptcy, consumer proposals and other services for their clients.
The licensing of LITs happens through Canada’s Federal Government. In particular, the Office of the Superintendent of Bankruptcy (OSB) oversees all licensees within its jurisdiction, which is the entire country. They work in conjunction with the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) to train LITs in the proper way to perform debt consolidation and other services.
The Process of Debt Consolidation
Find a Licensed Insolvency Trustee
The first step in debt consolidation is to find a LIT near you to perform the service. Luckily, this process is relatively straightforward. Simply follow this link to the LIT finder available from the federal government, and find professionals near you.
Send a Consumer Proposal
After meeting with your LIT of choice and providing the necessary financial information (which is kept confidential), they can provide a plan of action. It may be best for you to file for bankruptcy, send a consumer proposal or just achieve greater financial literacy.
However, if it is necessary to consolidate your debt, sending a consumer proposal is the next step. This will involve informing your debtors of the consumer proposal and laying out your terms to them.
Wait Until Debtors Accept Proposal
After sending the consumer proposal, you will have to wait until your debtors accept the offer. However, not all of them will have to accept before the proposal is agreed to. One of the chief benefits of consumer proposals is that after half the involved debtors agree to the proposal, it becomes a legally-binding contract for all of them.
What Happens Afterwards
After more than half of your debtors agree to the consumer proposal, several effects occur immediately. Firstly, you will no longer be subject to harassing phone calls about late or missed payments. Additionally, all your debt will stop accruing interest and be reduced to the amount agreed to by each debtor.
However, the benefits do not end there. Your debt will become a single monthly payment and you will have to pay the decided upon amount each month. Depending on the situation, you may also begin debt counselling to learn about proper financial literacy.
Is Debt Consolidation Worth It?
Several options exist for handling debt. Temporary loans or deals with financial institutions can be helpful in the right circumstances. However, the high standard of ethics that binds LITs is the separating, and essential, factor. The ethical requirements of the position, along with the scrutiny involved in a federally-regulated industry, make it the best resource for those looking for earnest help. Debt consolidation is a great way to protect your family, your assets and your finances from potentially ruinous consequences.