Line of Credit, Personal Loans, and Credit Cards: What to Do When You Have Too Much Debt?

Having several debts at the same time doesn’t necessarily mean bankruptcy is inevitable! Many people with multiple debts are simply looking to combine their payments, because they see their budget getting tighter and tighter while the balance doesn’t go down…

A line of credit used to its limit, credit cards with high balances, a personal loan to repay, or tax debts can multiply your payments. And even with a stable income, the accumulation of several debts can create significant stress.

The problem isn’t only the total amount of your debts. There are also the interest rates, the number of payments to manage each month, and insufficient repayment capacity…

When debts start taking up too much room in your budget, different solutions exist. What matters is knowing them before the situation becomes uncontrollable.

Why can several small debts become a big problem?

The real challenge often comes from the accumulation of payments to make. For example, a person may have:

• a credit card with an $8,000 balance;
• a $15,000 line of credit used almost entirely;
• a personal loan with a fixed monthly payment;
• tax debts;
• a car loan or recreational vehicle loan;
• several other recurring payments (including the mortgage).

When monthly payments add up, there’s often very little money left for day-to-day expenses or unexpected costs.

Credit card debts are the hardest to manage because of their high interest rate (around 20%). And when you can only make the minimum payments each month, a large part goes only toward covering the interest.

Lines of credit can also become problematic when they’re used as a permanent solution to pay essential expenses or to pay off another debt!

Personal loans add to your monthly payments as well, which means several due dates and a feeling of losing control.

What are the signs that your debts are becoming hard to manage?

The signs of debt becoming a problem often appear gradually:

• you only pay the minimum amounts on your credit cards;
• you use a line of credit to repay another debt;
• you miss certain payments or have to push back bills;
• you no longer know exactly how much you owe in total;
• you receive calls or notices from your creditors;
• a large part of your salary goes only toward repaying debts;
• you no longer have any room for unexpected expenses.

When monthly payments become too high for your ability to pay, some people realize they have too much debt.

But solutions exist! Consulting a trustee for free as early as possible gives you access to more options to get out of it.

Can you group multiple debts together?

Yes, it’s sometimes possible to group multiple debts through consolidation, but access to this solution depends on each person’s financial situation.

Consolidation generally means replacing several debts with a single new payment. For example, several credit cards, a line of credit, and personal loans could be combined into one loan with a different interest rate.

The person still has to repay their debts in full, but with a single monthly payment instead of several payments to different creditors.

The advantages are:

• a single monthly payment to manage;
• better budget organization;
• a potentially more advantageous interest rate;
• a clearer view of the repayment timeline.

To approve a loan that combines your debts, financial institutions assess:

• your disposable income;
• your level of debt;
• your repayment capacity;
• your credit history.

Someone with a high debt ratio might not be eligible for a new consolidation loan.

To learn more about this solution, read our article on debt consolidation in Quebec.

What’s the difference between debt consolidation and a consumer proposal?

Debt consolidation and a consumer proposal can both help someone with multiple debts repay them, but these solutions are very different.

As explained above, debt consolidation is a loan offered by a financial institution. It combines several existing debts (such as credit cards, lines of credit, or personal loans).

A consumer proposal, on the other hand, is a legal process governed by the Bankruptcy and Insolvency Act. It must be prepared and administered by a Licensed Insolvency Trustee.

In certain situations, this solution lets you offer creditors to repay only part of what you owe, under an agreement adapted to your financial capacity. And generally, there’s no more interest.

The main differences are therefore:

Debt consolidation:

• obtaining a new loan that combines all your debts;
• often requires sufficient borrowing capacity;
• depends on your income and credit record;
• doesn’t usually reduce the total amount of your debts;
• the interest rate is more advantageous than credit card rates.

Consumer proposal:

• a legal procedure supervised by a Licensed Insolvency Trustee;
• can reduce the total amount to be repaid in many cases;
• combines all your unsecured debts;
• a single interest-free monthly payment (amount set according to your repayment capacity).

To understand how this option works in practice, read our article on the consumer proposal.

The solution you choose depends on your personal situation (amount of debt, available income, and your own goals).

Which debts can be included in a consumer proposal?

A consumer proposal can generally include several types of unsecured debts (those not tied to an asset pledged as collateral in case of non-payment).

These types of debts include:

• credit card debts;
• personal loans;
• unsecured lines of credit;
• certain consumer debts;
• tax debts.

For example, someone who has three credit cards, an unpaid line of credit, and a personal loan could group these multiple debts together instead of managing several separate payments. The total amount could be reduced and there’s generally no more interest to pay.

But every file must be analyzed individually by a Licensed Insolvency Trustee such as Gobeil Groupe Conseil. Certain debts may receive special treatment or may not be eligible depending on the circumstances.

It’s therefore important to get a professional analysis before choosing a solution. If your debts are mainly tied to your cards, our article on credit cards: consolidation, consumer proposal, or bankruptcy compares the three options.

What if your monthly payments have become impossible to make?

When monthly payments become too heavy to manage, the first step is to get a clear view of the situation.

Many people avoid looking at all their debts because it feels discouraging. But knowing the exact figures is what allows you to make the right decisions.

Here are the recommended steps.

Draw a complete picture of your debts

Start by listing all your debts:

• credit card balances;
• line of credit amounts;
• personal loans;
• tax debts.

Note the monthly payment amount for each one and their interest rates.

This step lets you understand the scale of the situation and identify which debts cost you the most.

Someone who no longer knows the total amount they owe, or who is accumulating several creditors, can quickly end up with too much debt and significant stress.

Assess your disposable income

The amount of your income matters, but it isn’t the only factor to consider. Above all, you need to determine how much you actually have left after essential expenses:

• rent or mortgage costs;
• home repairs and maintenance (and taxes);
• food;
• transportation;
• insurance;
• essential services (electricity, cellphone, etc.);
• other expenses (dentist, glasses, medication, outings, clothing, etc.).

This analysis lets you evaluate your true repayment capacity. Because a person can have a good income yet not have enough money to make all their debt payments (after day-to-day expenses).

Compare the possible solutions for multiple debts

Depending on your financial situation, different solutions can be considered:

• adjusting your budget;
• negotiating with certain creditors;
• debt consolidation;
• a consumer proposal;
• personal bankruptcy in certain situations.

Consult a licensed trustee before the situation gets worse

A Licensed Insolvency Trustee can analyze your overall financial situation and explain the different solutions available to you.

You don’t need to wait until you’re in default to seek advice. A consultation can prevent interest from continuing to accumulate and stop the problems from growing further.

Book your free phone consultation with our licensed trustee.

When should personal bankruptcy be considered?

Personal bankruptcy can be considered when a person isn’t eligible for the other solutions. It’s a last-resort option when:

• the debts are very high;
• repayment capacity is insufficient;
• income doesn’t allow for the minimum payments;
• no agreement is possible with creditors.

As with any insolvency process, a complete analysis is necessary before choosing this solution to over-indebtedness. It’s a procedure set out in a federal statute.

Our trustee can explain the possible consequences bankruptcy can have on your credit record, the obligations to respect, and how long the procedure lasts.

The goal isn’t simply to erase your debts, but to find a solution that lets you start over on solid ground.

Why consult before you’re in default?

Consulting as early as possible can make a big difference. The longer a person waits, the more limited the solutions can become.

When debts keep accumulating without a clear plan to regain control, it can have several consequences:

• increasing interest;
• collection calls;
• constant pressure from creditors;
• risk of legal proceedings;
• the possibility of a wage garnishment in certain situations.

Some people wait until they’re completely overwhelmed before asking for help. Yet a free analysis by a trustee could have helped them find an advantageous solution.

Multiple debts: several solutions exist

Having several debts to repay can become stressful, but it doesn’t mean no solution exists.

Credit cards, lines of credit, personal loans, and other unsecured debts can sometimes be reorganized through different strategies.

Depending on the circumstances, debt consolidation, a consumer proposal, or another solution to debt in Quebec can help you find financial balance again.

Book an appointment for a free phone consultation with our trustee to analyze your debts, your budget, and your repayment capacity.

You’ll then be able to determine which solution can help you best.

FAQ

What should I do if I have several debts to repay?

The first step is to list your debts, your income, and your monthly payments. Then you can compare the different possible solutions, such as debt consolidation, a consumer proposal, or reorganizing your budget.

Can you group credit card debts and personal loans together?

Yes, it’s sometimes possible to group credit card debts and personal loans through debt consolidation.

But your eligibility depends on your income, your level of debt, and your credit record.

What’s the difference between consolidation and a consumer proposal?

Debt consolidation lets you obtain a new loan to combine several debts at a lower interest rate.

A consumer proposal is a legal process administered by a Licensed Insolvency Trustee that allows you to combine and often reduce certain unsecured debts based on your repayment capacity. Interest is generally cancelled.

Can a consumer proposal include a line of credit?

Yes, an unsecured line of credit can generally be included in a consumer proposal. But every situation must be analyzed individually by a licensed trustee.

When should you consult a licensed trustee?

It’s recommended to seek advice as soon as payments become difficult to manage, your debts grow too much, or you use a card (or a line of credit) to repay another debt.

Do I have to wait until I’m in default to ask for help?

No. Consulting a trustee before you’re in default can make you eligible for more solutions and prevent your financial situation from deteriorating further.

Book a call with our trustee!

Book your free phone consultation with our licensed trustee at Gobeil Groupe Conseil.

We serve every city in Quebec, since all steps can be completed by phone and by video conference.

Let us help you regain control of your financial situation!