Hi Ross, I have gotten myself into a pickle. I owe $60,000 on my personal line of credit and two credit cards. I cannot repay this in my lifetime or the next. But I still have two more credit cards with available credit of $40,000. Someone told me I should spend this money first
– in for a penny, in for a pound? M.F. Waterloo
I’m sure your friend’s advice was well intentioned, but that is NOT the recommended approach to your problems. It is quite likely this sudden splurge of spending or cash advances would come back to haunt you, as a cursory glance of your credit card statements for the previous year will reveal that you committed an insolvency no-no.
Most likely, the right solution will be found by consulting a trustee who also administers consumer proposals. She will review your various assets and household income, and demonstrate to you the costs, pros and cons of either filing a personal bankruptcy or entering into a consumer proposal.
If you end up declaring bankruptcy, you will be required by law to hand over all your credit cards to the trustee, even ones with a zero balance owing. However, this is not the case if you enter into a consumer proposal.
If any of these cards have been issued by lenders who are not directly affected by your proposal, there is a good chance you will be able to hang onto them. This will allow you to maintain and rebuild your credit rating quickly, and also provides you the convenience of having plastic in your wallet.
As a practical matter, I suggest you first learn to live without any credit cards for three to six months, and then slowly ease your way back into using them. You have to relearn not to rely on borrowed funds to supplement your income.
Otherwise, we could be having this discussion again in a year or two.
Most, but not all, major chartered banks will offer their clients a secured credit card. A very useful way to build or rebuild your credit history.