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Budgeting and debt management are two financial areas that are closely related, and in many situations, people who are facing a debt problem have been struggling with money day-to-day for months or even years.

If you find yourself in any of the following situations or difficult budgeting habits, it may be time to seek a Licensed Insolvency Trustee for support and solutions that will help you get your debt under control – and paid off for good.

Budget Problem 1: You Don’t Stick to Your Budget

A budget is a spending plan to help you stay on top of your finances, meet your money goals, and get your debt paid off. Planning and tracking your income and expenses can also help you identify issues right away, so you can decide what to do about it.

  • Budgets are a tool, not a restriction, and without one that is working well you’re almost certain to run into cash-flow problems and turn to credit to pay expenses and cover unexpected costs.

How Am I Overspending?

There’s a crucial difference between having a budget that doesn’t work because you give in to overspending that you have the cash to cover and overspending because your income can’t meet your regular costs of living.

If you aren’t going into debt by going over your budget, curbing overspending is still important to stay on track for things like savings and other financial goals. It’s important to take stock of why and how you’re spending – consider:

  • Would you spend less by challenging yourself to only use cash?
  • Are your purchases driven by mood?
  • If you walk away from a purchase for an hour, would you still buy the item?

A 2023 BC Consumer Debt Study found the main cause of debt from 25% of insolvent consumers polled was using credit for essential costs of living income could not cover.

A cycle of using payday loans or a credit card or overdraft to fill the gaps in your budget is hard to break once it’s been started and even small charges that get added to a credit card balance can escalate significantly over time with accumulating interest.

  • Are your monthly debt payments unaffordable or unsustainable? Talk with a Licensed Insolvency Trustee to assess your situation and explore options that can reduce your debt payments down to what you can afford.
    • Interest-free consolidation solutions like a Consumer Proposal can cut your debt up to 50-80% and get you to debt-free in less than five years.

Try this Calculator to see a Debt Options Payment Comparison

Budget Problem 2: You’re Not Saving, or Planning for the Future

Planning and tracking your income and expenses carefully can help prevent a cycle of reliance on credit, and a good budget should include allocations for your living expenses, debt repayments, and savings.

  • Savings can make a crucial difference when financial emergencies arise. Having credit available as a safety net can be comforting, but this isn’t ideal, especially if a disruption in incoming funds becomes long-term.
  • Looking to the future and retirement is another component of savings that tends to be overlooked or put on the back burner – but time can pass faster than our good intentions come to fruition.

Many people opt for only focusing on paying off their debt, with the thought that once that’s done, they will start saving. While this approach does add up mathematically, it can leave you vulnerable to unexpected expenses – ideally you want to have at least an emergency savings fund that you only use in the event of a true emergency.

  • If you are making debt payments but don’t have any savings, consider adjusting your budget to enable you to build up enough savings to cover a months’ rent and groceries.
  • If your budget is already stretched too thin with your regular costs and debt payments to manage diverting some funds for savings, this is an indicator your debt may be unaffordable and even a small disruption to your income or expenses may turn into a serious problem.

When Should I Focus Only on Paying My Debt?

If you have a comfortable amount of emergency savings and your retirement is still a long way off, it may make more sense to make paying off your debt the financial priority – especially if you have high-interest debts like credit cards.

  • Consider connecting with a Licensed Insolvency Trustee to explore resources to help you get your debts paid down faster, and at less cost. The sooner you can get debt paid off, the sooner you can make the most of your income for your future self.

Learn More About How to Balance Your Budget to Pay Off Debt and Cut Money Stress

Budget Problem 3: You’re Uncertain About Account Balances

It’s important to have confidence in your finances and personal money matters, and if you’re not aware of your account balances and how much you owe, this can be the first place you begin to lose control. Without knowing what you’re working towards or must manage, it’s almost impossible to budget properly.

Not staying on top of your bank accounts and transactions can easily lead to bounced payments, a derailed budget, and even erroneous charges going unnoticed. Consider:

  • Do you know how much is currently in your chequing account? What about the balances on credit cards?
  • Keep track of your accounts and payments; make a point of reviewing your balances after every few purchases and after each payment is made – this also helps as you track your progress paying down your debt and meeting other financial goals.

As well as being aware of your account balances, read the fine print before taking on any type of credit and ask for clarification on any terms you’re unsure about before borrowing.

  • Extra charges, annual fees and compounding interest are just a few things that can catch consumers off-guard and result in extra payments.
  • Lenders extend credit to make money, not to do you a favour – always be sure the terms are manageable for you and that you’re fully aware of your rights and responsibilities.

My Spouse Handles Our Money Matters

While it may seem like a good idea to delegate all responsibilities for household financial management to one spouse, the reality is this can result in huge problems, such as:

  • The managing spouse may feel stressed and eventually resentful about bearing the sole burden of juggling finances, and while the other spouse may be blissful in their ignorance, while debts for which both are liable may be mounting.
  • Conversely, the hands-off spouse may feel worried, kept in the dark and be unaware of key money matters.

Have an open dialogue with your partner and make sure you both contribute to handling the family’s financial affairs.

Read More on Dealing with Debt and Financial Stress in Your Relationship

Budget Problem 4: You’re Not Budgeting Enough for Monthly Debt Payments

Making regular monthly payments is a good thing, but if the payments aren’t high enough, there are issues at even a basic level. Consider:

  • Are you paying only near the minimum payments because that’s all you can afford?
    • Very little of these minimum monthly payments will go towards your principal balance and interest charges will snowball quickly.
  • At that rate of repayment how long will it take you to become debt-free?
    • You can find a breakdown of this repayment disclosure on your credit card statement. Even relatively ‘small’ balances can take decades to clear if only minimum payments are made.

Especially where credit card debts are concerned, minimum payments may keep your account up to date but in the long run will result in years and years of debt repayment because of the continued interest charges. Always pay more than the minimum payment – if you can’t, talk with a Licensed Insolvency Trustee about alternative debt repayment plans.

If you’re only budgeting enough to pay your minimum monthly payments, or slightly more than – this is not enough to get your debts paid off in an efficient timeframe, period.

Paying Off Credit Card Debt – 3 Problems to Avoid

What’s My ‘Rule of 60’ Number? 

It is recommended that you have a plan that will allow you to have all your non-mortgage debts paid off in five years or less. Try the following quick calculation to test your current debt-free plan to this standard:

  1. Add up your total non-mortgage debt and divide the number by 60.
  2. Can you afford this as a consistent monthly payment to get your debts paid in 60 months?

Revisit your budget with this ‘Rule of 60’ in mind:

How Can a Licensed Insolvency Trustee Help Me? 

Licensed Insolvency Trustees are Canada’s only official debt help experts and our role is to provide consumers with information, advice, and guidance about how they can deal with problem debt. You may have questions such as:

  • Are there options to consolidate my debt without borrowing from a bank?
  • Can I negotiate an interest rate reduction with my creditors?
  • What can I do if I can’t afford to pay a debt back?
  • How can I stop a creditor from harassing me or my family?
  • Is bankruptcy a suitable solution for my situation?

We are here to answer all your debt and debt solution questions and offer you non-judgmental advice. You can also decide to work with a Licensed Insolvency Trustee on a debt management plan such as a Consumer Proposal, or personal bankruptcy.

In a free, confidential debt consultation we will take the time to learn about your situation and goals, and together talk with you about all of your options. Once you understand the resources and solutions available to you, you’ll be fully informed and in a position to confidently move forward with the plan that’s best for you.

Get started with your debt-free plan now – book your free, confidential consultation with a non-judgmental local expert who cares.

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