Debt is a significant problem for consumers in Canada and around the world, particularly following the global financial meltdown that started in 2008 and continues today. The most recent numbers indicate the average Canadian household is carrying $13,141 in personal debt, not including mortgages. This is simply too high of a debt burden for most consumers to sustain over a long period of time. With this much debt, many Canadians are likely to be struggling just to make ends meet and keep up with their bills to avoid damaging their credit scores.
Severe financial distress leads to things like bankruptcy or foreclosure, so you need to develop a strategy that allows you to eliminate debt effectively in order to avoid these outcomes. If you can't develop a strategy like this on your own within the limitations of your budget and income level, then you need to seek help. While many consumers shy away from asking for help with financial difficulty, in many cases you need the assistance to navigate the complex world of finance effectively.
Your first step to develop an effective debt elimination strategy is to determine exactly how much debt you have, as well as how much available cash flow you have to use in order to eliminate the debt. First, total up all of your current monthly credit card payments. Compare this to the amount of income your household earns each month. Ideally your credit card debt payments should not exceed 10 per cent of earned monthly income. If your credit card debt payments use more than 10 per cent of your budget, you need to take aggressive action to reduce your debt.
Nextyou need to look at your budget to determine how much cash flow you can make available for debt reduction. Cut anything from your budget that isn't a necessity, understanding that any cuts are temporary as you eliminate credit card debt. This helps maximize the amount of cash you have available for your debt reduction strategy. Now, decide which method you should use to eliminate your credit card debts. You will pay all of your bills as scheduled, but devote all of your extra cash flow to eliminatingone debt at a time. You can start with the highest interest rate debt first to save money or if you need to build cash flow and momentum, you can start with your lowest balance debts first.
If after evaluating your debt you determine that there is no way you can feasibly pay off all of your balances in a reasonable amount of time, then you need to look into alternatives for debt relief. Consumers with excellent credit scores may be able to qualify for a 0% APR balance transfer credit card or a good interest rate on an unsecured debt consolidation loan. However, if you have bad credit, you won't qualify for an interest rate that's low enough to provide the relief you need. In this case, you can contact a not-for-profit credit counselling agency to discuss other options for debt relief with a trained credit counsellor.
Connie Solidad has been writing about finances and debt consolidation for years. She's an expert in the industry and writes about credit counseling and debt management options. When Connie is not working, she loves playing with her two dogs in Tampa, Florida. To learn more about debt management refer to ConsolidatedCredit.ca.