I have written before about my concerns with debt managements consultants. While the principle is fine (meeting with someone to review your options), as with all agreements, you need to review what you are doing thoroughly before you sign and make sure you understand the financial implications of what you are doing.
Last week I met with Tom and Betty (not their real names). They went to a debt management consultant 2 years ago. At that time they had $30,000 in credit card debt, a mortgage of $150,000 and a house worth $170,000. The consultant referred them to a mortgage broker who in turn re-wrote their mortgage with a new amount of $160,000, paid off their old mortgage and $10,000 towards their credit card debt. (Please note these amounts are not exact, they are for illustrative purposes only). In addition both the debt consultant and mortgage broker charged fees for their services.
They came to see me because they still have the same $20,000 in credit card debt that they had 2 years ago. They have only been able to make minimum payments and have continued to make new charges on the credit cards. They are wondering what their options are now. I reviewed both the consumer proposal and bankruptcy options and they have decided that bankruptcy is now their best option.
Rewriting a mortgage or getting a secured line of credit can be an effective way to consolidate your debt. However, if you don’t have enough equity in your home to pay off all of your debt, you really need to crunch the numbers first. You also need to make sure you don’t continue to use credit. In Tom and Betty’s case, they ended up with a higher mortgage payment and still didn’t have the cash flow to manage their debt. They may have been better off filing a consumer proposal 2 years ago.
Make sure you know all of your options first. Call me or email me for a no charge consultation.
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