When The Debts Are Piling Up…
Most people with a financial problem actually have 2 problems;
- They spend more than they make, and
- Their debt load is out of control
Both problems have to be fixed before your problem is cured.
Item 1) – write down the sources and amounts of your monthly income and total these up. On a separate list, write down all of your basic monthly living expenses (but not debt payment unless it is your mortgage or vehicle payment) and total it up. These would include things like;
- rent or mortgage
- utilities including phone, cable, internet
- food and household items (if you eat out a lot, list this separately)
- medical expenses not covered by medical insurance
- vehicle payments if purchased on a loan or lease
- vehicle operating expenses, such as gas, repairs/maintenance, insurance
- and all other common expenses
Add up the items in the two lists and compare the totals.
Do your expenses total more than your income?
If they do, you have probably been using credit to pay the shortfall so you have to cut back your expenses or increase your income(but not from using more credit)so that your debt stops increasing. If you do not fix this budget problem, then any method you use to deal with your debt will not work in the long run. Alternatively, if you have monthly income left over after covering all of your monthly living expenses then you can consider how to deal with your debt over time. The amount of income left over will determine what type of arrangement you can make. The common methods include, but are not limited to, you paying the debt off over a reasonable period of time on your own, a debt consolidation payment arrangement through a credit counselling agency, a consumer proposal under Canada’s federal insolvency law, or, as a last result bankruptcy. A Licensed Insolvency Trustee (“LIT”) can assist you with understanding these options.