Recently, Keith Emery, our Operations Director, was invited to appear on BNN to discuss the issue of out-of-control debt problems, and provided some very useful tips for recognizing out-of-control debt, and knowing what to do if you’re already in this situation. The first question Keith was asked was about how people can know if their debt problems are out of control on a personal level. He pointed out that there is an obvious indicator – being unable to keep up with payments. But he also suggested that it is wise to identify a problem like this as early as possible, and not wait until you’re missing payments. Some early indicators would include:
- Having no ability to save. If saving has been squeezed out of your budget entirely, it’s a sign that you’re running very close to the edge.
- Having to rely on credit to cover expenses.
- Having consistently rising debt levels. If you owe more money than you did one month ago, or one year ago, this is a problem. Depending on how much your debt level has risen, you can determine whether this is a big debt problem or a small one.
Keith was then asked about what to do, for people who already find themselves in a difficult situation. He provided three basic tips that people can consider. These are:
- Start with the obvious – the budget. The balance between income and expenses is crucial, and in order to improve this balance, income needs to go up, or expenses need to go down, or both need to happen. You’ll have to determine which is more possible in your own situation.
- Any prospects for refinancing should be checked. As a general rule, you should always try to move existing debt away from high-interest-rate accounts to low-interest-rate accounts. This minimizes the interest burden and enables the debt to be repaid faster. But there’s one thing that everyone must remember – it’s very important that, if a high-interest account has been cleared off, that account must not be run up again!
- As a final tip, Keith suggested that for some people, it is a good idea to seek outside assistance. Accredited credit counselling from a not-for-profit credit counselling agency such as Credit Canada would be a good starting point. What you should expect at this point is that first, the credit counsellor will examine your situation thoroughly. This will entail a lot of questions about your current budget. Once this is done, the credit counsellor will be able to evaluate any options that may be realistic, and to explain what the implications are if these options are pursued.
In summation, Keith stressed the importance of awareness of your debt situation and whether it is a problem for you. In addition, if you have serious debt problems, taking action as soon as possible will always be the best response.