With so many credit products available, it is easy for Canadian business owners to overspend on a monthly basis. This can get you into seriously bad financial habits that can very negatively affect your solvency. If you have found your debt is out of control, there are many ways to get your debt back into a more manageable standing.

Although it is far easier to get into debt than it is to get out of it, we can help provide a debt consolidation strategy that will get you back on track. It condenses your payments into bite-sized pieces that not only help you pay your debt down faster but also provides you with more cash flow.

Signs Your Debt is Out of Control

Many businesses don’t notice their debt is out of control until it is too late. They go along continuing to use credit believing that as long as they pay off the minimum amount of their balances, they are fine. However, this is often a sign your debt is out of control. Here are the signs we look for in unmanageable debt:

• You are falling further and further behind on payments
• You are almost solely relying on credit to meet your monthly bills
• You are only paying the minimum amount on credit cards
• You are only paying interest on your lines of credit
• Your debt is over $20,000
• You are receiving calls from creditors

All of these signs point to a business with cash flow issues and high debt. So, what can you do to avoid losing your business?

Debt Consolidation vs. Division 1 Proposal

There are two ways to avoid bankruptcy if you are having difficulty managing debt:

1. Debt consolidation
2. Division 1 proposal

Debt consolidation allows you to maintain your credit and pay off all of your debt at once. It is ideal if you are still managing to pay your debt off, just not as effectively as you can. A Division 1 proposal, on the other hand, is the second to last resort before bankruptcy. It is a way of negotiating with your creditors to get a better deal on your repayment options.

If you find you are so far in debt it is no longer manageable, you are at risk of losing your business. For a Division 1 Proposal, we will look at all of your current debt and present a proposal to your creditors with payment plans that will allow you to repay debt but remain operational. This will immediately stop credit calls and you will no longer have to pay creditors until your proposal has been drawn up and accepted.

We present the proposal and creditors vote on whether or not they accept the terms we present. At least 66.6% in dollars and 50% plus one in a number of eligible creditors must vote in favour of your proposal otherwise your business is placed in bankruptcy. This makes this approach risky and only advisable when you are trying to avoid bankruptcy. It will also negatively affect your credit rating which can affect your relationship with suppliers.

Debt Consolidation: The Best Solution

If you have a manageable amount of debt and are still managing to keep a good credit rating, debt consolidation is an excellent choice. Debt consolidation might sound complicated, but it is one of the simplest and most effective debt solutions. It has far more pros than cons and offers you a way to get spending and payments under control. As the name implies, debt consolidation takes all of your current debt and consolidates it into one manageable loan. You pay off all of your creditors and are left with one simple monthly payment. That’s it in a nutshell, but there is a bit more to it than that.

How Debt Consolidation Works

Debt consolidation is used for debts that can include:

• Credit cards
• Outstanding balances on public utilities
• Outstanding balances with suppliers
• Consumer loans such as lines of credit

The purpose of debt consolidation is to put all your eggs in one basket. Although this is ill-advised for many financial and life situations, in the world of debt, this is far more desirable. With our assistance, you apply for a single loan that will be used to pay off all of your outstanding debt. Every single balance. The key is to get the lowest possible interest rate for this new loan, so you lower your monthly payments and are paying down more on the primary loan instead of just paying interest without lowering your balance.

How Does a Trustee Help?

Our role in debt consolidation is to help you secure the best possible loan to pay off your current balances. We have access to leading financial institutions and their credit products allowing us to find the lowest interest rates in hand with the highest credit limit. This provides you with the optimum amount of money so you can pay off all debt and get started with a clean slate. We will also provide you with valuable advice on how to manage your payments and avoid getting back into debt.

The Benefits of Debt Consolidation

The main benefit of debt consolidation is you will have a lower interest rate which allows you to pay your debt off more quickly. You will also have a single monthly payment for all of your debt, which will usually provide more cash flow. This means you can:

• Protect or rebuild your credit rating
• Pay off all of your creditors to allow you to rebuild relationships with suppliers
• Save time on managing accounts payable with a single creditor to pay each month
• Get out of debt faster with more money going to your balance instead of interest
• Avoid bankruptcy or filing a Division 1 proposal

The Disadvantages of Debt Consolidation

There are far more benefits to debt consolidation than there are disadvantages. In fact, it is not so much a disadvantage as it is a reminder that you will still have to repay all of the money you owe, unlike a Division 1 proposal, which can lessen your debt burden. The other issue is that it is easier to fall back into bad credit habits like being tempted to use credit cards again. Although you will owe one balance, you will still have to meet the needs of suppliers as well as manage the single payment that might still be a larger sum despite the lower interest rates.

If you are interested in learning more about debt consolidation, call Charles Advisory Services at (416) 915-9007 or contact us here.