Getting A Handle On Debt

Dear Jeff,

I have always considered myself to be well informed with my financial affairs – and then the reality of my financial ignorance hit me over the head. It started with a few letters in the mail, followed by the haunting sound of creditors trying to reach me by phone. Not only have I been avoiding my phone and mail box, for fear of what my lenders have to say, I am also ashamed to admit that I have no idea how much I currently owe. I am not sure how I got to this place, but I would appreciate any help you can offer in terms of getting rid of this debt?

Michelle T.
Toronto, Ontario

 

Hi Michelle,

Thank you for the question. And thank you for asking for help. You are clearly in over your head when it comes to debt, and I think I can provide you with some tools that will help you get a grip on your finances.

Admitting that you don’t know how much you owe is difficult. But don’t worry, you are not alone. I cannot tell you how many individuals and families contact us for help without truly knowing how deep their debt burden is. So let’s start there.

The first thing I want you to do is gather every debt statement you have. This is going to mean going to your mailbox and opening all those creditor statements you have been avoiding for the past few months. Now organize them by date and focus on the most recent statements for each debt. Getting organized is going to give you a better idea of your financial situation.

Next I want you to make a list of all the debts you currently have. These can include:

  • Credit card debts
  • Lines of credit (secure and unsecure)
  • Financing loans (these include loans for your wedding, furniture, or a vacation)
  • Auto financing
  • Student loans
  • Buy-now Pay-later loans (Leon’s, Brick, etc.)
  • Outstanding utilities, phone and cable bills
  • Outstanding tax bills
  • Loans from friends and family
  • Pay day loans

Beside each outstanding balance, include the current balance from the most recent statement and the interest rate on each debt.

Once you have calculated your monthly debt obligations, you need to compare your debt to your income. Write down all sources of monthly income and use an online calculator to determine your current debt to income ratio. If your monthly debts total more than 40% of your monthly income, there is a good chance you are heading towards a debt disaster.

If this is your situation Michelle, I would strongly recommend contacting a credit professional to discuss the debt relief options that are available to you.

On the other hand, if your debt-to-income ratio is lower than 40%, you may be able to take steps to eliminate the debts on your own. Start by taking a long look at your budget and making cuts to your spending. These cuts will free up additional cash flow that you can dedicate to paying down those outstanding balances.

One way to motivate your debt repayment strategy may be to use a free online debt calculator to figure out how long it is going to take you to pay off each balance by making only the minimum payment – and compare this to how long it will take if you can pay more than the minimum. You may also want to note how much each debt is going to cost you in additional interest and fees.

At the end of the day, there is always going to be a solution to eliminate your debt. Once you find the solution that is right for your unique financial situation, it is essential to learn to budget and live within your means so that you don’t face another debt disaster.

Jeffrey Schwartz
Executive Director

Jeffrey Schwartz is the Executive Director of Consolidated Credit Counseling Services of Canada and President of the Credit Association of Greater Toronto (CAGT).

If you have a question about a debt management program or just about finance in general, Jeff is here to help. Send us an email with your question to AskJeff@ConsolidatedCredit.ca. You’ll get the expert advice you need and your question may be featured here on our website.

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