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Tackling Your Debt: Options and Pitfalls
When you decide to tackle your debt there are many options to choose from and each of them have their own pitfalls. This post covers three common choices people make to deal with their debt and some of the things you should consider before committing to any of them.
Cashing in RRSPs:
Your RRSP may seem like an easy source of money to get you out of a financial jam, but it is likely you will need that money later in life, so think hard about the future consequences. Once the funds are released to you they will be considered taxable income, so be careful to account for how much extra you will owe CRA come tax time. Many people cash in Their RRSPs because they think they will lose them anyway if they declare bankruptcy. That is not true; RRSPs are exempt from seizure in a bankruptcy
Sometimes a consolidation loan is your best option. Instead of tracking various payments at various interest rates you can pay all your debt off with one loan and then make one monthly payment. Often the interest rate on a consolidation loan will be lower than the various debts you were previously paying. However you must be careful not to rack up extra debt gain once you have consolidated. Using your loan to pay off your Visa and then spending up to its limit again just leaves you with twice the debt you had before.
Engaging an unlicensed advisor:
There are many people and companies who offer debt advice and solutions. However, large parts of the industry are completely unregulated, meaning you can end up paying exorbitant fees to someone who took a 2 hour online diploma and receives most of their funding from credit card companies.
If you are seeking assistance with debts shop around and compare fees. Make sure you are dealing with a reputable company and fully understand the terms of any process you are committing to. Remember that only licensed bankruptcy trustees can offer you legally binding protection from bankruptcy or a consumer proposal.
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