Debt Repayment Options

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The stress of owing money can keep anyone up at night, fortunately, there are different debt repayment options that can help you pay down your debts faster than you might think. A young professional, in theory, should have an easier time paying off student loans, and credit card debt. However, someone who has abused credit for many years and is now struggling to keep up with payments may need to take more drastic measures.

Which option you choose will depend on various factors including; how much you owe, your income, your current expenses, and your credit rating. Making the right choice can be tough and it may require you to make sacrifices, but at least you have options.

There are many debt repayment options

Debt repayment options that help

Debt repayment plan – Regardless of how much debt you may have, it’s a good idea to have a debt repayment plan in place. This isn’t anything special, it’s simply a plan to help you get out of debt. Some people prefer to pay off their highest interest credit card first, while others prefer to pay off their lowest balance; the idea is to have a plan in place so you’re actively working towards paying off your debt.

Consolidation loan –  This is a single type of loan which traditionally comes from a bank. It combines all your outstanding debt so you end up paying all of your creditors at the same time. Besides making payments easier, consolidation loans usually have a lower interest rate making debt repayment much faster. If approved, the bank will pay off all of your outstanding debts on your behalf, you then make payments just to them.

Marketplace lending – Also known as peer-to-peer lending (P2PL), marketplace loans are a relatively new debt repayment option that is starting to become more popular. It’s basically a fixed-term consolidation loan that comes from accredited investors, who are anonymously and securely matched up with people who are looking to borrow through a P2PL company. With marketplace loans everything is done online so there’s no need to apply in person.

Unlike a traditional consolidation loan, marketplace loans encourage you to get out of debt. “Debt consolidation is a smart move if you can find a product with a lower rate and that will let you pay the debt off” says Andrew Graham, CEO at Borrowell. “We think our fixed-term loan product is a responsible way for someone to take control of their debt. A debt consolidation loan allows someone to pay off other debts and consolidate it all into one convenient monthly payment.”

Consumer proposal – This might not seem like a positive option, but it’s better than bankruptcy. A consumer proposal is a debt repayment plan made with your creditors with the help of a licensed trustee. With the proposal, you agree to pay a portion of what you owe to your credits and in return, they forgive any outstanding debt once you’re done paying down the proposal.

“A consumer proposal is a great alternative to bankruptcy for many debtors,” says Douglas Hoyes, a Trustee at Hoyes, Michalos & Associates.” You get the advantages of bankruptcy without some of the disadvantages.” You don’t lose your assets and once the creditors agree to your proposal, your payment remains fixed even if your income changes. In some circumstances, you might still be required to pay the entire portion of your debt, but a 0% could apply.

Beware of debt settlement companies and “debt consultants” that aren’t licensed. A federally licensed consumer proposal administrator does not charge upfront fees, so if you’re ever asked for an upfront fee, the odds are you’re not dealing with a legit company.

Debt repayment options to avoid

Payday loans – These are the worst and should be avoided at all costs, yet a recent Joe Debtor study done by Hoyes, Michalos, & Associates shows that payday loans are way up! Some people who run into credit card debt believe that they have no choice and see payday loans as a real option. Payday lenders are smart with their marketing, I’ve seen ads that offer a “Free $200 cash advance” or “$3 to borrow $300”. It’s no surprise people think they’re getting a deal, but when you read the fine print you could end up paying 800% interest, which makes your debt much worse.

Credit cards – You can’t technically pay off one credit card with another, but you can get a cash advance assuming you have available credit on the other card. The problem with this method is that you’ll end up paying a higher interest rate, and it starts compounding immediately– obviously you should never seriously consider this option.

Bankruptcy – This is literally your last resort. It’s time to consider bankruptcy when your debts are far beyond what you can repay on your own. Your debts will be totally cleared, but your credit will also be negatively affected and a note will be left on your credit file for many years.

It’s not just credit score that gets affected. “First, you must report your income to your trustee each month, and if your income increases, your payments while bankrupt may increase,” says Hoyes. “Second, in a bankruptcy, you lose certain assets.”

If bankruptcy is your only option, a licensed trustee will help you administer the process. Payments are based on your income and can last up to 21 months. There’s also a chance you’ll lose some of your assets, but at least once you’ve made your final payment, all your eligible unsecured debts will be discharged and you can start fresh.

Final thoughts

If we’re not careful, our debt can get out of control, and as you’ve read, some debt repayment options actually do more harm than good. Taking control of our finances early is the best step since obviously, we want to avoid bankruptcy or a consumer proposal, but if we leave our things unchecked we may not have a choice.

If you’re not sure how to handle your current situation, seek out a professional that can help you get back on track.

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi


  1. Our Big Fat Wallet on June 22, 2015 at 9:28 PM

    Payday loans are brutal and in my opinion should be illegal. You’d be better off to take a loan out on your house than to take out a payday loan so long as there is a plan to eventually pay it back

    • Barry Choi on June 22, 2015 at 9:30 PM

      Our Big Fat Wallet,

      Seriously, they are absolutely absurd, I don’t get how they are legal or how there’s no regulation.

  2. Chonce on June 23, 2015 at 11:56 AM

    Payday loans are the worst! I’m grateful I got a hold on my debt before I let it get out of control. I’ve heard of some people using 0% APR credit cards to pay off debt though, and just paying off the card interest free. The best option above all is to develop a debt repayment plan or talk to a financial advisor/professional if you need serious help.

    • Barry Choi on June 23, 2015 at 12:55 PM


      Yes if you stick to a debt repayment plan you should be in good shape, but there’s definitely some good products out there that can help you get out of debt faster these days.

  3. Hyacinthe on June 23, 2015 at 9:27 PM

    Credit Card balance transfers CAN be a good when you benefit for low intro BT rates (0% for 12 months, 0.99% for 6 months) if, and ONLY IF you have a plan…
    It can be a better alternative to consolidation loan for a short term. Of course, that mean you don’t stick to minimum payment only, but instead use the interest relief to pay down the principal more aggressively.

    • Barry Choi on June 23, 2015 at 9:28 PM


      You’re totally right. I actually had a small paragraph about that written but I decided to leave it out as IMO the other options are better.

  4. My sister once fell victim to payday loans. Those things should be criminal. You can easily get in over your head in such a short while. Luckily my father was there to bail her out, but not everyone has a parent watching out for them.

    • Barry Choi on June 26, 2015 at 7:53 PM


      Yeah it doesn’t seem to take very long for people to get stuck in a payday loan cycle.

  5. Tom Johnson on July 7, 2015 at 8:42 PM

    I remember doing some work in a pay day loan center and could not believe my eyes when I saw the charges that are attached to one of these loans, totally criminal. One really needs to try and get their debt under control before stepping foot in one of these pay day centers. If they cannot get the debt down themselves then they need to talk to a debt counselor to help them get things under control.

    • Barry Choi on July 7, 2015 at 8:44 PM


      It’s actually amazing that payday loans aren’t regulated, even their advertising is incredibly deceiving. You’re right talking to a debt counselor is probably a much better idea than continuing to borrow more money.

  6. arielsee on July 22, 2015 at 12:02 AM

    I tried using my credit cards to pay off my debt long time ago, and the result? I was buried more with debt. It’s true that it’s one of the fastest way to pay off debt, however, this will also bring more problem to you.

    • Barry Choi on July 22, 2015 at 12:35 AM


      It’s a common mistake to use one credit card to pay off another. It’s not technically faster since you’ll end up with more debt.

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