How much debt one carries can seem monstrous to some and minute to others – it’s all relative to where you are today and what your goals are tomorrow. Whether your debt is manageable on your own or you need assistance in reducing your debt will depend upon your situation. Just how critical your situation is will impact how many options are left open to you to manage your debt and who you should call for help.
Are You In Crisis Mode?
If you can no longer pay your debts as they become due or your debts are already in default, it’s time to call for help. You have already reached a point of no return as far as a simple quick fix. So how do you know if you are in crisis mode?
- Add up all of your monthly debt payments and necessary living expenses. If your paycheque doesn’t cover these with some room to spare for emergencies, then you are in deeper than you should be.
- You are receiving harassing phone calls for debts that you know you owe and you are avoiding the calls because you can’t repay those debts.
- Collection activities have gone so far down the road that you are threatened with, or have received notice of, a wage garnishment.
When you are in a crisis the first step is to bring the situation under control. You can best do that by talking to a professional about your situation. Does that mean you have to go bankrupt? No it does not. What a debt expert, such as a bankruptcy trustee can do is help you to analyze your situation and gather all of the facts about your finances. They will help you look at your debts objectively and answer some necessary questions:
- Do I still have options? There are always alternatives to review, however, if you need to deal with the immediate crisis of pending creditor actions then some form of filing under the Bankruptcy & Insolvency Act may make sense.
- What alternatives will deal with the immediate crisis (stop your creditors from taking action against you), protect what I can today, and ensure I am better prepared financially for the future? Talk to a bankruptcy trustee about both a bankruptcy and consumer proposal to review which option is best for you.
Is Your Debt Status One of Survival?
If you’re struggling to live paycheque to paycheque because debt repayments are taking up too big of a piece of your pay, you’re continuing to borrow to make ends meet, or worse yet, you are borrowing from Peter to pay Paul, then it’s time to call for help.
Because you are not yet in a crisis situation, you likely have more options open to you.
- If you are still able to borrow, consider doing so in a way that will eliminate your debt rather than add to it. Talk to your financial institution about a low interest debt consolidation loan. In the meantime, take a good hard look at your budget and find ways to cut back and apply more towards debt reduction.
- If your debts are small and mostly credit card debts, a Debt Management Plan offered through an accredited credit counselling agency may lower your payment enough to be affordable and help you eliminate your debt (usually within 5 years).
- If you owe a significant amount of credit card or other unsecured debts (usually more than $10,000), then your best option would be to talk to a bankruptcy trustee. Substantial debts are usually best settled via a consumer proposal or bankruptcy as your payments would likely be lower than in a Debt Management Plan.
Do You Need Better Money Management?
It’s not necessarily too much debt that causes money problems; you could be short each month even if your debts are within your means to repay. Managing money is a skill, not something we learn in school unfortunately, or something that is intuitive to most. While you may not need a formal debt relief program, you may benefit from talking to a credit counsellor or money coach about how to budget more wisely, define appropriate long term financial goals and manage your finances better.
It is not uncommon for people who come in to see us to wait until they are in crisis mode. Not only does this limit their avenues to get out of debt, but it means that they have suffered under the burden of that debt for longer than necessary.
All of the above are warning signs of financial difficulty. The best way to manage yourself out of the situation is to recognize that you need a professional to help sort out your finances and to learn which option will give you the financial relief you’re longing for.
Everyone’s situation is different, everyone deals with stress in different ways, but I think most can recognize when it’s time to put pride aside and get help from someone who has answers.