Generally, Canadians have been taught that when you incur debt you must pay it back, with interest, at all costs, even to the detriment of your family’s well-being.
In many cases, people end up carrying debt for years, hoping that something in their life will change that will allow them to pay off their debts. As financial professionals, most of the people who come to see us have had the same debt revolving for numerous years. Due to compounding interest and they’re making only minimal payments, they never seem to be able to pay it off.
When you pay your bills each month, do you find you have to use credit to cover expenses such as food, clothing, or extracurricular activities for the kids because you don’t have sufficient funds left over to cover the other costs associated with running a household?
Perhaps it’s time to take a close look at your personal finances to determine if you can pay your debts off in a reasonable time. Sitting down and preparing a summary of your income and expenses (based on the last three months of bank statements) is a great starting point to see where you are spending your money and how much you have left over for debt repayment.
Here is an example of what a spreadsheet might look like after you’ve totalled your monthly spending:
|Fixed Expenses||Month One||Month Two||Month Three||Average|
|Cell Phone/Home Phone|
|Car Finance Payment|
|Variable Expenses||Month One||Month Two||Month Three||Average|
Once you know where your money is being spent, then you can see how much money is left over for debt repayment each month. If the amount left over is insufficient to pay your debts in a reasonable period, then perhaps it’s time to consider filing a consumer proposal or bankruptcy to deal with your debts. A consumer proposal allows you to consolidate your unsecured creditors into a single payment with no interest, often at a significantly reduced amount. Bankruptcy allows you to discharge your debts after completing several duties and paying an amount based on your earnings.