Making time to deal with your debt

Time: it’s something for which we say there isn’t enough, and we can’t create any more. The real issue is how do we allocate and prioritize our time?

When it comes to dealing with debt, many would prefer a visit to the dentist to looking over credit card statements. In less time than it takes to scroll through one of the streaming services to find your next series or movie to watch, you can focus on your debt and have a plan to keep it under control.

Going from point A to point B

The first step in tackling your debt is to figure out where you are right now; this is point A. Once you know what point A looks like, you can decide where you want to be. That is point B.

It sounds simple, but most people will start by saying they want to be debt-free — and you can’t get to point B without starting from point A.

What is your point A?

The first step is to list out all your debts. The information you need for each debt is:

• The type (credit card, line of credit, payday loan, mortgage, car loan)
• The current balance
• The minimum payment due
• The interest rate

It’s best to group the debts by type. When we meet with people for the first time, the biggest surprise is the total debt they owe. The second biggest surprise is the total cost of the minimum monthly payments.

What is your point B?

Many believe point B should be a situation where they are debt-free. That isn’t always the case. Realistically, as you pay off that car loan, the car will likely need to be replaced. The mortgage may need to increase due to major repairs or renovations such as a new roof, furnace, air conditioner, etc.

However, paying credit cards down to zero could be an achievable goal. The ideal situation with a credit card is to pay off the balance each month. This means there will be no interest charges (you essentially had use of the money for free for a month). 

Possible suggestions for goals at your point B could be:

• Once you pay off the car loan, be able to wait 1-2 years before needing to replace it.
• Pay the credit card down to zero within six months and be able to pay off the balance each month.
• Keep the line of credit to a balance you can pay off within 1-2 years.

Plan your journey

Now comes the tricky part — deciding how to navigate your way from point A to point B. Every person will have a different journey. It’s up to you to decide which is the best one for you.

Some steps on the journey that you can take include:

• Paying more than the minimum payment on the highest interest debt first.
• Pay the smallest balance first, which gives you the satisfaction of one fewer debt problem.
• Plan for unknown events that may upset the payment plan (e.g. school trips, major car repairs)

Given your current budget, how long will it take to go from A to B? If one to two years, then good for you. If 10 to 15 years, it may be time to bring the experts to take a second look.

A Licensed Insolvency Trustee (“LIT”) is someone who can assess your situation. Signs that you may need to discuss your debt situation with an LIT:

• Your minimum payments total $1,000 per month, but you only have $800 per month in the budget.
• One or more of the debt payments is currently behind, and this is not the first time.
• The interest rates for most of the debts are more than 20 percent.

A Consumer Proposal may be the solution to help bring the debt payments down to an affordable level to get you back on track. An LIT can make a full assessment of your situation at no cost to you and determine which is the best option to help you get to your point B.