6 Proven Methods to Clear Your Debt and Rebuild Your Credit

Debt Relief

6 Proven Methods to Clear Your Debt and Rebuild Your Credit

Last Updated May 4, 2023

Debt can be overwhelming and cause a lot of stress and anxiety, but the good news is that it can be managed and cleared. Once cleared, you’ll be on the right track to rebuilding your credit. There are many methods available to help you clear your debt and rebuild your credit. Depending on your specific situation and financial goals, you may find that one method works better for you than another. In this blog post, we’ll first explore five proven methods for clearing debt. These methods include credit counselling, consumer proposal, debt management, debt consolidation, debt settlement, and bankruptcy. While this article will outline the methods, to learn more visit here.

By understanding these options, you can make an informed decision about which method is right for you. Afterwards, we’ll go over the best steps to start rebuilding your credit. Keep reading to the end to find out all the things you can do to rebuild your credit once you’re free from debt. If you’d like to skip straight to rebuilding your credit, click here.

Credit Counselling

Credit counseling is a popular option that involves working with a credit counselor. Together, you develop a realistic budget plan that helps you pay off your debts over time.

A credit counselor is a professional who can offer guidance and support to people struggling with financial issues. They’re trained to assess your situation, create a plan of action, and provide resources and education on how to get out of debt.

Working with a credit counselor can be an effective way to manage your debt. They have the knowledge and experience necessary to develop a personalized plan that fits your individual needs. They can help you understand your current financial situation, identify any potential pitfalls or areas where you could improve, and create a budget that works for you. For someone to talk to about your financial situation visit us here to set up a free consultation.

Besides helping you manage your debt, credit counseling can also help you improve your overall financial health. By learning more about budgeting, saving money, and managing credit, you’ll be better equipped to handle future challenges as they arise.

Consumer Proposal

Another popular option is a consumer proposal. This process involves working with a licensed insolvency trustee. They create a formal proposal to send to your creditors, outlining how much you can afford to pay back over time. The proposal outlines how much you can pay towards your outstanding debts each month. It is then presented to your creditors, and if they agree, it becomes legally binding for both parties. Your creditors then have 45 days to vote on whether or not they accept your proposal. If the majority votes in favour, your debts get consolidated into one manageable payment plan that typically lasts between three and five years.

Consumer proposals are designed to help you manage your debt without losing too much in the process. One of the advantages of consumer proposals is that it allows you to keep control of your assets while making payments towards your debt. This means that you won’t have to give up any of your possessions or sell them off in order to pay back what you owe.

Additionally, with consumer proposals, interest rates on your debts are frozen. This means that after the agreement is made between yourself and the creditor(s), no further interest will be charged. One drawback to a consumer proposal is that it may stay on your credit report for up to 3 years. However, you’re able to achieve freedom from debt and start rebuilding your credit quickly after that period. To learn more visit here.

Debt Management Plan

Debt management is the process of reducing and eventually eliminating your existing debts through a combination of effective strategies. Debt management programs vary depending on the type of debt you have, your financial situation, and your overall goals.

One of the first steps in debt management is to create a budget. This will help you understand how much money you have coming in each month, and how much you are spending on various expenses. By identifying areas where you can cut back on spending you can free up more money to put towards paying off your debts.

Additionally, using the avalanche method and prioritizing debts such as those with the highest interest rates can help make progress faster. There’s also the snowball method which is paying off and eliminating loans with the smallest balance.

Negotiating with creditors is another important aspect of debt management. Many creditors are willing to work with individuals who are struggling to pay their bills. If you think you might need help from experts in credit negotiations, contact one of our representatives here.

Debt Consolidation

Debt consolidation is a financial strategy that combines multiple debts into one loan with a lower interest rate. This approach can be beneficial for those who have accumulated several debts, such as credit card balances, personal loans, or medical bills. Debt consolidation typically offers lower monthly payments, simplified repayment terms and end dates, and the potential to save money in the long run.

The main advantage of debt consolidation is its ability to simplify your financial situation by reducing the number of payments you must make each month. Instead of juggling multiple creditors and payment due dates, you’ll only need to worry about repaying one lender. Additionally, consolidating your debt can reduce your overall interest charges by securing a lower interest rate than what you’re currently paying on individual debts. By lowering your interest rates, more of your monthly payments go toward paying down the principal balance rather than just covering interest charges.

Debt Settlement Plan

Debt settlement is another option that can provide relief to those struggling with debt. It involves negotiating with creditors to settle for less than the full amount owed. This may sound too good to be true, but debt settlement is a viable solution for many people who are overwhelmed by their financial obligations.

The process typically involves working with a debt settlement company or attorney who will negotiate on your behalf with your creditors. They will try to reach a mutually agreeable settlement that is less than the total amount owed. This can include negotiating lower interest rates, waived fees, and reduced principal balances.

It’s important to note that debt settlement does come with some risks and downsides. It can negatively impact your credit score, and there’s no guarantee that your creditors will agree to settle. Additionally, you may have to pay taxes on any forgiven debt as it could be considered income by the CRA.

Bankruptcy

Debt can be overwhelming and stressful, especially when it seems like there’s no end in sight. While bankruptcy may seem like the only way out, it should always be a last resort option. Filing for bankruptcy is a serious financial decision that can have long-lasting consequences on your credit score and ability to borrow money in the future.

Bankruptcy should only be considered when all other options have been exhausted. However, it may provide relief from unmanageable debts and give you a fresh start financially.

That said, bankruptcy is a serious consideration for anyone struggling with debt. While it can provide relief from overwhelming financial burdens, there are other alternatives that should be explored before taking such a drastic step.

Before considering bankruptcy, try exploring other debt relief options such as budgeting, negotiating with creditors for lower interest rates or payment plans, or seeking help from a debt specialist company. These options may take longer than filing for bankruptcy but can ultimately lead to better financial stability and less damage to your credit score.

Bankruptcy stays on your credit report for up to 10 years and can make it difficult to obtain credit or loans in the future. It may also require attending mandatory counseling sessions and liquidating assets like property or vehicles. If you do decide that bankruptcy is the only option left, make sure you understand the different types of bankruptcies available and their requirements.

Rebuilding Your Credit

Once you’ve successfully cleared your outstanding debts, it’s time to rebuild your credit. Rebuilding credit can take some time, but with a few simple steps, you can get back on track fast. The first step is to check your credit report to ensure that all your debts have been cleared. Then, identify any errors or inaccuracies that may be affecting your credit score. You can dispute these errors with the credit bureau and get them removed from your credit report. You may request a copy of your credit report from any of the major credit bureaus such as Transunion or Equifax.

Once your credit report is free of any debts or errors, take a look at your credit score. Your score will start to recover once you’re free of debt. If your score is low and you want to do more to improve it the next step is to establish new credit.

Secured Credit

This can be a challenge if you have a low credit score, but there are options available. You can consider applying for a secured credit card, which requires a deposit that serves as your credit limit. This will help you to establish new credit and demonstrate responsible credit behavior. You can also consider becoming an authorized user on someone else’s credit card, which can also help you to establish new credit. It is important to make all your payments on time and in full. This includes credit card payments, mortgage payments, and other loans. Late payments can have a negative impact on your credit score, so it is important to make sure you pay on time every month. You can even consider setting up automatic payments to ensure that you never miss a payment. This will help to show lenders that you’re serious about rebuilding your credit. Just be sure to make sure to pay your bill on time, and eventually, you’ll be able to qualify for an unsecured card with a higher limit.

It’s also important to understand the reasons behind why you were previously in debt. You do not want to make those same mistakes again. To understand better, take a look at our article 5 psychological reasons why you’re still in debt.

Personal Loan

You can also consider applying for a personal loan, which can help to show on-time payments and create a positive credit history. This is different from a payday loan which are often predatory and use high interest rates. Additionally, similar to the previous option, it’s imperative that you do not miss payments, or you run the risk of needlessly extending the process of rebuilding your credit.

Credit Utilization

Lastly, make sure to keep your credit utilization low. This means that you should not use more than 30% of your available credit limit. By following these steps, you can start to rebuild your credit and achieve a healthier financial future.

When you are in debt, it can be difficult to even imagine rebuilding your credit let alone clearing your debt. It is important to be patient and consistent. Rebuilding your credit takes time and effort, but with the right approach, it is possible. Stay focused on your goal, and don’t get discouraged by setbacks. Over time, your credit score will improve, and you will be on your way to a brighter financial future.

That concludes our list on 6 proven methods to become debt free and start rebuilding your credit. All of the debt relief programs mentioned in this article are available in Alberta for anyone struggling with debt.

By implementing strategies such as creating a budget, negotiating with creditors, and seeking professional assistance, anybody can take control of their finances and work towards becoming debt-free. Once debt-free, you’ll stand a better chance to rebuild your credit using the methods outlined above. It’s important to remember that overcoming debt takes time and patience, but the end result is worth the effort. If you’re feeling overwhelmed by your debt, reach out to a financial advisor or credit counselor here for guidance and support. With the right tools and mindset, anyone can achieve financial freedom and a stress-free life.