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One Couple’s Path to Becoming Debt Free

January 20, 2017

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In this post we will be looking closely at one real life couple, Mark and Melissa, and their path to becoming debt free.

Mark and Melissa have three children and are both self-employed. Over the years, the couple has worked very hard to build both of their businesses, which are now generating a consistent income of approximately $5,400 per month.

The couple owns their home, but unfortunately it has not accumulated much equity. If they were to sell their house, after paying the real estate commissions and the mortgage payout penalties, they would only be left with about $10,000 in net equity. In addition to their house, the couple also owns one vehicle worth $3,500 and a truck that they are currently making payments on.

While building their businesses, the couple’s income was sporadic, and they began to accumulate consumer credit debt. Soon after, they began to fall behind on their income tax and GST payments. Not including their mortgage and truck loan, the couple’s combined unsecured debt load totaled $120,000, with $40,000 of this debt being owed to the Canada Revenue Agency (CRA).

The couple struggled for years to pay down their debts and found that most of their monthly income was being used for debt repayment. Unfortunately, due to looming interest charges, Mark and Melissa’s debt was only going up.

When the couple’s debt load became too much to handle, they sought help from a licensed insolvency trustee. A licensed insolvency trustee is regulated by the Canadian government to process personal and corporate bankruptcies, as well as administer proposals to creditors. The trustee listened closely to their situation and discussed their options for debt relief. The couple felt much better knowing that there were solutions available to them, and eventually decided that a consumer proposal was the right option for them. The trustee negotiated a settlement with their unsecured creditors, including the CRA, for $39,000, reducing their monthly payments to $650 for five years. Fortunately, they were able to keep their home and both vehicles, while continuing to make their mortgage and truck payments.

If Mark and Melissa had continued on the path they were on, it would have taken them over 25 years of $650 monthly payments, and upwards of $500,000 in interest, to pay off their debt.

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