|
|
A briefing to help you understand more about bankruptcy, proposals, credit counselling, credit reports/ratings and the true interest on pay day loans, credit cards and lines of credit.
Bankruptcy, Proposals and Credit Counselling
In life, people fall on hard times – a divorce, failed business, loss of employment or family emergency. Income instability often causes people to fall behind on bills. If the amount owing is seriously beyond your ability to repay, you may have to consider consulting a trustee in bankruptcy/consumer proposals or go into credit counselling.
Bankruptcy
Bankruptcy is an avenue the law allows to consumers who have debts beyond their ability to repay their creditors. When you file for bankruptcy, the process is as follows:
-
Most first-time bankrupts make a monthly payment based on income to the trustee for a period of nine months.
-
After nine months of payments, in most cases, they will be discharged from bankruptcy and the obligation to the trustee is fulfilled.
-
The bankruptcy will appear on the credit report for six years from the date of discharge.
Prudent offers loans to undischarged
as well as discharged bankrupts.
Rebuild credit during bankruptcy as well as after your bankruptcy!
Consumer Proposal
Generally, people who have assets or a large income but are still unable to repay all their debts are not allowed to go into bankruptcy – but they can go into a proposal.
When filing for a proposal, the process is as follows:
-
The trustee submits a proposal to your creditors for a percentage of the debt to be repaid
-
If the proposal is accepted by the creditors, you will make monthly payments to your trustee, and the settlement amount can be paid over 24,36,48 or 60 months.
-
The proposal does not come off your credit report until three years from the date it is paid in full.
Credit Counselling
Credit Counselling non-profit agencies will propose either a freezing of interest or a repayment plan to fit your budget.
-
Your credit rating during this repayment plan will be a 1 followed by #7 – 17 -- a number designating credit counselling.
-
The agency will disburse monthly payments to your creditors and take a small percentage of payments to cover their costs. (Never pay any agency up front without first verifying its legitimacy.)
|
|
Understanding Your Credit Report
Your credit report organizes information as follows:
1. Personal Information – such as addresses
2. Inquiries – An inquiry is shown on your credit report every time you apply for a loan or open a bank account. The more inquiries, the worse your credit profile. Try to keep credit inquiries to four a year.
3. Employment history – the last three employers
4. Public records/collections -- a list of collections, judgments, bankruptcies, proposals or liens on assets. Defaults even on small amounts from a telephone bill, gym membership, 407 ETR are harmful to your credit.
5. Trade Lines – gives the whole record of your debt with each creditor you borrow from --- creditor’s name, date(s) money borrowed, credit limit, terms of payment, balance owed and credit rating.
6. Credit Ratings – what they mean:
· R refers to a credit card and I refers to a loan
· R1 and I1 -- up-to-date
· R2 and I2 -- 60 days late
· R3 and I2 -- 90 days late
· R4 and I4 -- 120 days late
· R5 and I5 – 150 days late
· R7 and I7 -- credit counselling
· R8 and I8 -- repossession
· R9 and I9 -- bad debt -- write off
· If you fall 30-150 days in arrears and pay your account up to date, your rating reverts to an R1 or I1. If it goes to R9 or I9, it will remain for 7 years from the date the debt is paid!
Understanding the true interest cost of pay day loans, credit cards and lines of credit.
Pay day loans – compare with Prudent loans
-
1. Pay day loans are short-term and have to be repaid in full by your following pay period. Prudent loans are paid over 1-4 years.
-
2. Most people with pay day loans cannot repay their principle within two weeks and end up paying only interest! The cost to borrow $1000 can be anywhere from $90 - $250 over two weeks depending on the company. If this original loan of $1000 takes you a year to repay, it could end up costing $4680 to over $10,000! A Prudent loan of $1000 costs $227 over the entire year plus we will hold your cheque free of charge for up to 2 weeks when you are in a tight spot. This eliminates NSF charges and preserves your I1 credit rating.
-
3. Pay day loans do not help repair credit because they do not report to Equifax except if you go into collections! Prudent reports to Equifax regularly and when you pay on time you get I1 – the highest credit rating!
Understanding how to calculate the real interest on your credit cards and line of credit
Wake up to the hidden dangers of making only minimum payments on your credit cards or line of credit!
Banks and stores deliberately make the minimum payments small so you can borrow large amounts without a sizable monthly payment and they can reap large compounded interest on the unpaid balances.
Step 1:
Take your annual interest rate and divide it by 12 months to get your monthly rate. For example: A yearly interest rate of 15% divided by 12 = a monthly interest rate of 1.25%
Step 2:
Take your balance owed and multiply it by your monthly rate of interest. Say it’s a $5000 balance, so $5000 x 1.25% = $62.50
Step 3:
Divide the monthly interest into the amount of your minimum payment of $150 and you will calculate the true interest on making only minimum payments on your balance. $150 divided by $62.50 = 42% which is the real interest you are paying.
|
