4 Pillars Consultants Set Apart the Most Common Debt Relief Options

Recent statistics show that the amount of household debt in Canada has risen to over 160 percent of adjusted household disposable income. This means that a lot of Canadian families are owing more money than they actually earn. It’s only a matter of time before the financial sector feels the impact as the rate of nonpayment begins to shoot up. Fortunately, debtors are offered various solutions to their financial situations, which in turn help creditors recover their money. The most common of these debt relief options are debt consolidation, debt restructuring, and debt settlement. While they have many apparent similarities, they are actually different and should be treated as separate debt relief options. 4 Pillars Victoria and Vancouver Island consultants can help you understand these differences so that you can make the right choices when trying to manage your financial obligations.

 

Debt Consolidation Is Not a Form of Debt Restructuring

 

One of the main reasons why either debt consolidation or debt restructuring does not work for some borrowers is that they are often used interchangeably. You cannot blame the borrowers for making such a mistake though because the features of these options look very similar. For instance, it’s pretty obvious that consolidating multiple debts is an act of restructuring the original debt, simply because you are changing something in the structure of your debt. The truth is that there’s a fine line of difference. Debt consolidation is the process of combining multiple debts into one, hoping to lower the regular rate and simplifying the monitoring and payment processes. Debt restructuring, on the other hand, is the process of re-negotiating the terms of credit facilitated to make it more affordable. The difference is in the active participation of the creditors in the process; only in debt restructuring they are given the option to actually respond to the borrower’s request for consideration.

 

Debt Restructuring Is Not a Form of Debt Settlement

 

The reason most creditors agree to restructure debts is that there’s a chance they might not get anything once the debtors file for a bankruptcy. They agree to the new terms so that they can recover at least a portion of the original amount they lent. This is why debt restructuring is also often mistaken for debt settlement. While both involve negotiation, these two options have key differences. In a debt settlement, the lenders individually simply agree to forgive a portion of the debt to enable the borrower to make one payment to settle the unpaid/delinquent debt. In a debt restructuring, on the other hand, the borrower requests to alter the terms of the lending collectively to all creditors in order to achieve some advantages. By understanding the differences between these debt relief options, you can easily identify which can best help your unique situation. Consultants from 4 Pillars can shed light on matters that you find difficult to grasp when it comes to paying your debt.


Sources:

Canadian household debt hits another record in fourth quarter, thestar.com
Debt Restructuring, investopedia.com
Household debt in Canada, statcan.gc.ca