Today’s society offers us many opportunities to get “credit”. We have credit cards, lines of credit, overdrafts, tax debts, and payday loans. I placed credit in quotes, because a lot of people mistakenly interchange the meaning of what’s credit, and what’s debt. When you’re using this newfound and easily obtainable credit, over time those balances can easily turn into debt.
So now you have your day-to-day living expenses, plus all of the expenses that your past self has imposed upon you. When you couple this those two together, your monthly payments are more than your monthly take-home paycheques. The result can lead to increasing the use of credit, which results in a debt load that just continues to grow and grow.
It’s Easy to Get Into Debt
If getting into debt is so easy, why is getting out of debt so hard? One of the biggest reasons is that the lending institutions receive interest from consumers who make monthly payments less than the total balance owed. From the lenders perspective, they want people in debt as their profits depend on it. As the consumers’ debt grows so does the amount they pay in interest, which makes it difficult to pay down their debts.
High interest rate credit cards and payday loans will result in a large portion of monthly payments to be allocated just to cover the interest. With debt against your name and current expenses piling onto that, your monthly earned income is no longer enough.
Make Getting Out of Debt Easy Too
1. Summarize Your Debt – write down or plot out your income and expenses. LITs Hoyes Michalos have a free budgeting workbook you can use as guidance. Break down your expenses into groups (housing, transportation, and living). Once you jot all of that down, you’ll know how much you have available to pay towards your debts.
2. Put a Hold on Debt – take your credit cards out of your wallet, and tuck them away in the back of your closet in a plastic bag. Not having your credit cards available to you will force you to use a cash-based system. This will help you prioritize your expenses and limit impulse purchases.
3. Think About It – You need to set financial goals. What do you want to achieve? You need to be ready to embrace change in order to succeed in gaining financial control. Managing debts and your budget will eliminate stress, but you need to set realistic goals so you can work towards them. The key is to stop thinking about your past and present situation and set goals for your future. Remember that your future is yours to decide and make. Set your financial goals and expectations and change your spending today to make that happen.
4. Review It – Meet with a Licensed Insolvency Trustee who is a debt expert licensed by the federal government. They help people every day understand their options and help create a plan that’s right for you and your future. There is no cost for the meeting and it will help you think of the possible changes you can make that will lead you to debt freedom.
5. Take Action – Once you’ve considered all of your options and determined what your future goals are, take action and make it happen. Your plan should include reducing financial stress, focusing on becoming debt-free, keeping a balanced budget, and most importantly – building towards your envisioned future.
The financial toll of life and debt can be overwhelming. Follow these five steps and make life lasting changes that are right for you and your budget. Finances are essential in life, so the more control you have on your situation, the better off you’ll be.
I just moved a LIRA (unlocked it) and had it consolidated with my RRSP. Is it up for grabs if I declare bankruptcy? I have had the LIRA for 30 years.
Probably. Once a LIRA is unlocked, it’s not a LIRA. The issue will also be whether or not you have contributed to the RRSP in the last 12 months, and whether or not this unlocking counts as a contribution. This is a complicate matter, so you will want to meet with a Licensed Insolvency Trustee to review all of your documents before making a decision.