Anyone with debt, small or large, should take time to manage it. First, you need to figure out how much you owe and to whom. Start by obtaining a free credit report from Equifax and Transunion. Then, pull together your own records in a computer spreadsheet or with some personal financial software.
A running tally is useful and will put you face to face with your total debt, monthly payments and interest charges. Not only will this help visualize your progress, but also reveal why it sometimes feels like you’re fighting an uphill battle. You might be surprised by how much of your minimum payment is paying interest only. In fact, some creditors offer a minimum payment that covers only the interest portion of your debt.
The next step is understanding your Debt-to-Income Ratio. Your DTI is a representation measured in percent of how much of your income goes to debt payments — or, how much you owe compared to what you earn. It’s easy to calculate… just take your total monthly obligations such as a mortgage, loans, and credit card payments and divide by your gross monthly income. According to the Financial Consumer Agency of Canada, you want to keep this number below 40 percent.
Now that you’ve calculated your debt… how do you manage it? Firstly, always pay bills on time and at least the required minimum payment. Most creditors require you to make a minimum payment by a specific date each month. It’s critical that you keep up with this — missing or late payments may cause creditors to take corrective action.
Then, choose a Debt Repayment Strategy. The strategy you choose to pay down your debt matters less than whether you can commit to it over the long term. Some factors you’ll want to consider in your approach include (1) fitting within your monthly budget, (2) keeping you motivated and (3) reducing the total overall cost.
Managing your debt can seem overwhelming, and if you have been missing payments or feel like you’ve tried everything and aren’t getting anywhere with your debt, there are still opportunities to get the relief you need and deserve.
MNP Debt is a Licensed Insolvency Trustee. They offer a Free Confidential Consultation to review your finances, discuss your goals and help identify opportunities for you to get the financial fresh start you need and deserve. No matter your options, MNP Debt will make sure you have the information and assistance you need to make the best choice for your unique situation and get on the fast track to becoming debt free.
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