02/05/2013 12:21 EST | Updated 04/07/2013 05:12 EDT

There's No Such Thing As a Miracle Fix For Debt

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This illustration photo taken on December 22, 2012, in Paris, shows credit cards in a miniature toy shopping cart. AFP PHOTO / JOEL SAGET (Photo credit should read JOEL SAGET/AFP/Getty Images)

A new pair of shoes charged to your credit card? A family vacation paid for with your line of credit? Dinner with friends financed by your overdraft? Whatever the expense is, charging up a pile of unsecured debt can often be a lot of fun and at times effortless.

On the other hand, paying off that debt is usually easier said than done!

Consumer debt has become a major concern in Canada. Right now, the average household debt-to-income ratio sits at an all-time high of 164.6 per cent. While the Bank of Canada and the Minister of Finance continue to warn about the dangers of carrying such high levels of debt, Canadians continue to pile it on.


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As a result of this buy now, pay later consumer mentality an increasing number of debt relief organizations popped up to "help" indebted Canadians address their financial problems. And while many of these organizations do a great job in facilitating a healthy financial future for their clients, there are a number of debt relief companies that take advantage of vulnerable consumers without providing any real solutions.

Some of these companies, with slick advertising campaigns promising quick and easy ways to fix debt problems, and offering unrealistic promises of drastically lower payments, make it difficult to identify which solution will improve -- not hinder -- your financial health.

The stress of dealing with unmanageable debt can be overwhelming for most consumers. Between creditor calls, collection threats and living paycheque to paycheque, these "get out of debt fast" opportunities can be very appealing. But are they too good to be true?

Like any other financial product, doing your homework when it comes to debt relief is essential to finding the right solution for your individual financial needs. There is no such thing as a one-size-fits-all approach to debt management. By researching the various solutions provided by countless organizations, consumers can distinguish between legitimate debt relief solutions, and those that will further damage their financial future:

  • Blanket Recommendations -- There is no such thing as a one-size-fits-all debt solution. Consumers should be wary of agencies that do not take the time to review their personal financial situation and discuss all available debt relief options.
  • Unrealistic Claims -- Avoid debt relief organizations that make unrealistic claims to lower your debt by 80 per cent, or promise to remove negative information from credit reports. Getting out of debt is simply not this quick and easy, and accurate information cannot be removed from an individuals credit file.
  • Minimum Debt Requirements -- Steer clear of any debt relief option that requires you to be carrying a minimum amount of debt. No two financial situations are the same, and the agency should be willing to help regardless of the amount of money owed to creditors.
  • High Fees -- High up front fees, early program exit fees, and fees associated with consultations or financial education materials are all warning signs consumers should be aware of. A debt relief program should always be voluntary and never require payment before a consumer enrols.
  • Limited Creditor Communications -- Indebted consumers should never be required to limit or cut off communication with their creditors. If a consumer is making payments to a debt relief program, they should still be able to speak with their creditors.

Before signing up to any debt relief program, consumers should determine if it's the best solution for their individual needs. More importantly, Canadians should look for options that will not only help them address their current debt problems, but also provide the tools and skills they need to change their money management behaviours and build a healthy financial future.

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