Six Ways NOT to Pay Down Debt

March 21, 2012 by  Filed under: Bankruptcy 

Looking for debt-relief? Well, my friends, here are six ways that you generally should not consider as a means to resolving your debt issues.

  1. Cash in your RRSPs. Any contributions to your RRSPs made one year prior to filing for bankruptcy are NOT considered assets. In other words, if you have to declare bankruptcy and have $50,000 in RRSPs, you will not be required to cash them in. As soon as you cash in your RRSPs, you have to pay taxes on them. This in turn contributes to your existing debt. Any contributions that you have made to your RRSP in the past 12 months, however, will be clawed back. This is singularly the most important consideration that you need to know should you be considering bankruptcy!
  2. Refinance your mortgage. If your debts are unsecured, they are not tied to your mortgage. Having said that, when you do file for bankruptcy you will be asked to list your assets. If you have money in your house, you may be asked to sell your house. Don’t seek this option unadvised.
  3. Consolidate with a bank loan. If you are already experiencing financial difficulties, chances are that any loan you can get will have high interest rates attached to it (you will be considered higher risk).
  4. Juggle credit cards. Borrowing from Peter (eg MBNA MC) to pay Paul (TD MC) might placate the creditors this month, but all it does is delay – not resolve – your problem.
  5. Borrow from family. This is just a bad bad bad idea. Money with banks and governments are temporal. They invent it and print it at their leisure. Money from family is a result of hard sweat and labour. You can walk away from debts to institutions and bounce back. It’s called bankruptcy. You cannot walk away from debts to family. It’s forever. And it’s called dis-inherited. Sadly, I’m speaking from experience here.
  6. Ignore the problem. There is a solution for you. You just need to do a bit of work, consult a few experts, and then take action. Then your problems will go away. If you ignore them, they will stick to you forever.

As with anything in life, there is nothing that is absolute (except for item #6. But, no wait, even that can be an option.). Generally speaking, these six points are to be avoided. You as an individual need to take in this information and swill it around in your head. Seek advice. Ideally, you’ll speak to someone who is not financially invested in the solution you choose.

And please! avoid the sites that require you to submit your contact information and your amount owing. For the most part, I’ve found these organizations to be information dealers. They sell your information. And then not only will you get harassing phone calls from creditor but also from debt snake oil salesmen.

Get the facts. And then decide for yourself.

Britt Santowski is an independent debt counsellor in British Columbia, Canada, serving the Greater Victoria Region and Vancouver Island. Independent debt counsellors work directly for their clients, not the lenders. Ethical debt counsellors will not qualify you through online forms; they help you. And the first consultation is typically free. For more information on debt relief, please visit

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