How to assess your financial health

You’ve probably heard a lot of terms like financial health, financial well-being, and financial planning. It’s an entirely different story when it comes to your financial health.

Given the challenges in today’s economic climate — with rising housing costs, inflation, and increasing debt — it’s more important than ever to assess your own finances. If everything looks stable, forecasting a healthy financial future, good news. But for many people, a hard look at their finances reveals significant debt, trending into riskier financial hardships.

Looking at documents and sitting on sofa

Here are eight steps you can take to understand and improve your own financial well-being.

1. Assess your financial situation

Knowledge is power. Before you even start taking any actionable steps, the first requirement is getting a comprehensive picture of where you currently stand financially. The good and the bad.

Quantify your assets and investments, then make a full list of all your debts — amounts, interest rates, due dates, and minimum monthly payments. Once you know where you’re at, you can determine where you need to go and, more importantly, how to get there.

2. Prioritize your debts

Now that you have an understanding of your financial situation, prioritize which debts have the most urgency and remove the pressure to pay them off all at once. Determine which debts to pay off first.

Use the debt avalanche strategy — pay off the highest interest rate debt first which is more cost effective and avoid the debt snowball — paying off the lowest value debt while your higher interest rates date continue building momentum in interest. Another method to consider may be to focus on debts from missed or late payments since those are currently the most damaging to the individual's credit. Build a strategy around paying off the most damaging debts with the highest interest rates first, as they cost the most in the long run.

3. Establish a budget

With a full picture of your financial health and a hierarchy for paying off your debts, take firm control of your finances by creating a realistic budget that aligns with your means. Determining a new budget and reducing expenses that are within your control to make more room to pay down debt, will help you figure out how much money you can put toward your debt each month.

4. Find solutions to reduce your debts

Debt repayment isn’t as rigid as simply handing over the monthly minimum until it’s paid off. There are several solutions to reduce your debts. Negotiate with creditors to obtain lower interest rates. Look into options to consolidate your debts. Ask your creditors if they'd be willing to lower your interest rates. Look into options to combine your debts into a single lower-interest debt. Find the best options available to reduce your debts before you even begin your repayment plan.

5. Implement a repayment plan

You’ve assessed your situation and chosen your most important debts. You’ve figured out how much money you can put toward repayment on a monthly basis. Now it’s time to start a realistic payment plan. Direct your monthly repayment funds to your prioritized debts and — most importantly — stick to it. Avoid overspending on other unnecessary expenses. Stick to your budget and regularly make your debt repayments.

6. Avoid taking on new debts

As you begin your debt repayment, one of the most important things you can do is avoid taking on new debts. Avoid credit cards altogether (except for emergencies). Take steps to provide yourself with other payment options such as Visa debit or prepaid credit cards that will allow you the same flexibility without taking on new debt. Don’t take on new loans if possible. This is the time to eliminate debt, not add to it.

7. Find ways to increase your income

Don’t be afraid to look for new income sources. Seeking additional employment opportunities is always a viable option. This may also be a great time to sell some items you no longer need, freeing up space in your home and your finances. These new sources of income will help accelerate your debt repayment process.

8. Be patient and persistent

This might be the most important step. But if you’ve gotten this far, there’s no doubt you can stick to it. Debt repayment takes time. Stay true to your repayment plan. Stick to your budget. Resolve yourself to maintain patience and have the persistence you need to get yourself out of debt. Celebrate every small victory along the way and stay motivated to keep moving toward financial freedom.

It’s always good to have a backup plan

Even if, despite your best efforts, the current financial landscape proves too challenging — or if life deals you some devastating blows like job loss or illness — it’s important to know that you still have options and support available. It may be time to consult a licensed insolvency trustee. Here are four significant steps a licensed insolvency trustee can support you in to improve your financial well-being:

1. Financial assessment

If you’re feeling overwhelmed by putting all the pieces together to get a clear picture of your financial health, a Licensed Insolvency Trustee can assess your financial situation and help you understand the options available to resolve your debt.

2. Debt management planning

A licensed insolvency trustee is an expert in establishing a plan to manage your debt based on your financial situation. Debt prioritization, budgeting, and debt consolidation are all strategies your Trustee can explore. If more significant steps are needed like a Consumer Proposal or Bankruptcy, a licensed insolvency trustee is the best person to help make that determination.

3. Consumer proposal

In the event that you're struggling to repay all your debts, a licensed insolvency trustee can help you present a Consumer Proposal to your creditors. This plan allows you to repay a portion of your debts over a predetermined period of time.

4. Bankruptcy

Ultimately, if your financial situation is too difficult and you can't repay your debts, a Licensed Insolvency Trustee can help you determine if Bankruptcy is the best option for you, guiding you through the Bankruptcy process and helping you understand the short and long-term financial implications.

Overall, consulting a Licensed Insolvency Trustee can help you better understand your financial situation, develop a plan to manage your debt, and find solutions to help you get out of debt and on the road to financial freedom.

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