Tackling the credit crunch

SUMMERSIDE - Sandra Henderson keeps a stash of credit cards on her desk.
But they're all cut up.
Henderson explains the cards come from clients wanting to free themselves from debt.
"It's easy to rack them up. But man, oh man, to try and pay them down - it's very, very hard."
Data from Industry Canada indicates personal bankruptcy filings on P.E.I. increased 36.8 per cent (from 302 to 413) from November 2007 to November 2008.
Credit card debt is a big factor.
"We're not realizing what we're spending," Henderson said.
When spending happens on credit, it has the added cost of interest.
Henderson, a credit counsellor with Family Service P.E.I., said there are ways to tackle mounting debt.
A credit counsellor can help you budget and identify areas to cut back or offer information on options like consolidation loans, which would combine multiple debts into one - perhaps at a lower rate.
Henderson can also create a proposal for debt repayment to your creditors. Because she's from a credit counselling service, she typically gets a lower rate for clients - even zero per cent. That means more money goes towards principal, not interest.
With the economic downtown, Henderson sees one main difference in clientele using the free service.
"With the financial institutions cutting back on their lending, I do find that there seems to be a trend of more people coming because they don't qualify for their consolidation loan."
Bankruptcy can be the best option when there's no realistic hope of paying off the debt.
"The primary purpose of the Bankruptcy Act is to help somebody who has just absolutely too much debt - that they can't pay - to give them a new financial start," explained bankruptcy trustee Walter MacKinnon.
He's experienced a 60 to 80 per cent increase in clients over the last year. MacKinnon has helped everybody from lawyers to labourers through the process.
Bankruptcy does cost - about $1,400 for most people who would fall under what's known as a summary bankruptcy.
MacKinnon said the process would take about nine months and will stay on your credit report for seven years after the process is finished.
"It doesn't mean you can't get credit, but it's certainly more difficult."
MacKinnon noted by the time people get to bankruptcy their credit has often been affected.
And he said people are often embarrassed by financial problems, which likely contributes to them not getting help.
"Addressing the issue sooner is always better."

CREDIT COUNSELLING
Price: Free through Family Service P.E.I.
What it can do:
• Each case is individual but here are some possibilities
• Help with budgeting
• Advice on tackling debt such as loan consolidation
• Agreements with creditors, often with lower interest rate
For information:
• Credit Counselling P.E.I. 436-9171
sandra.henderson@-familyservice.pe.ca
Counsellor travels to Alberton and O'Leary.


BANKRUPTCY
Price: Most people would fall under summary
bankruptcy, about $1,400.
What it can do:
• Discharge debts with some exceptions (support, alimony, fines and penalties).
• It won't get rid of student loans if you file within seven years of finishing your studies.
• Could hurt your credit
For information:
• Bankruptcy trustee
PricewaterhouseCoopers Inc.
892-2010
Website: www.jwalter-mackinnon.pe.ca