Guidelines from Debt Experts: Managing Your Debt – The Right Way and the Wrong Way
Dealing with financial difficulties is never easy, especially when debts seem to stack up beyond control. However, with the right knowledge and approach, you can regain control of your finances. Here are some Debt Expert Do’s and Don’ts for Managing Your Debt to guide you in these challenging times.
1. The Importance of Organization
a. Gathering Accurate Information
One of the first steps towards efficient debt management is to understand the full extent of your financial obligations. You need to collect all the details about your debts including the amount owed, to whom, and the payment requirements. Don’t overlook minor debts such as overdue phone bills as they can become problematic if ignored.
b. Verifying Your Debt
Next, you need to compare your debt information with your credit history report. This will help you verify if what you think you owe matches what the credit bureaus have reported. Both Equifax and TransUnion provide free online access to credit reports, especially during the COVID-19 pandemic.
c. Ensuring Compliance with Tax Returns
Keeping your tax returns up-to-date is critical, particularly if you are indebted to the Canada Revenue Agency (CRA). The CRA can take severe collection action against you if your returns are not filed, thus exacerbating your financial situation.
2. The Pitfalls of Continuing Credit Usage
a. Managing Credit Cards and Loans
If you are serious about clearing your debts, it is crucial to stop using your credit cards, overdrafts, and payday loans. If your income is not sufficient to meet your needs, and you continue to rely on credit, your debts will eventually overtake your ability to service them.
b. Seeking Professional Help
If you find a gap in your income that you are filling with credit, it is time to seek help from a Licensed Insolvency Trustee. These professionals can provide valuable advice and help you devise a strategy to manage your financial situation.
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3. Preserving Your RRSPs
a. The Risks of Cashing Out RRSPs
It may be tempting to cash out your RRSPs to pay off your debts. However, remember that RRSPs are federally protected assets. Withdrawing them may result in a taxable income which might lead to a bigger tax bill at the end of the year.
b. Long-term Consequences
Cashing out your RRSPs may provide temporary relief, but it could lead to significant issues in the future. You may not have enough time to save up again before retirement, causing financial instability in your later years.
4. Avoiding Borrowing from Personal Contacts
a. The Emotional Cost of Borrowing
When faced with financial difficulties, it may seem like a good idea to borrow from friends and family, or to have them co-sign debts. However, this can lead to emotional distress if the borrowed money is not repaid as planned.
b. Understanding Co-signing Debts
Co-signing a debt means that both parties are responsible for 100% of the unpaid debt, not 50/50 as commonly believed. This can cause serious complications if you are unable to repay the debt in full.
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5. Being Selective in Accepting Advice
a. The Dangers of Misinformation
While everyone around you might have an opinion about how to handle your debts, it’s crucial to remember that many people, even professionals, can be misinformed. The laws and regulations regarding consumer debts are constantly changing, and you need to ensure you are getting advice from the right people.
b. Consulting a Licensed Insolvency Trustee
Licensed Insolvency Trustees are the only debt help professionals endorsed and regulated by the federal government. They can provide you with the most accurate and effective ways to manage your debts.
c. Avoiding Unnecessary Costs
Remember, understanding your financial options should not cost you money. If someone is asking for upfront payment, they are likely not a Licensed Insolvency Trustee. Always conduct thorough research before signing financial agreements.
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6. Recognizing the Difference Between Payments and Progress
a. The Minimum Payment Trap
Simply making the minimum payments each month might keep your accounts in good standing, but it won’t help you significantly reduce your debts. Most of your payment goes towards interest, causing your debt to pile up over time.
b. Understanding the Long-term Impact
Check your account statement to see how long it would take to pay off a credit card if only the minimum payments are made each month. You might be surprised at how long it can take!
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7. Prioritizing Your Mental Health Over Your Credit Score
a. Understanding the Impact of Debt Stress
Many people delay seeking debt help due to concerns about their credit scores. However, the stress and anxiety caused by financial difficulties can greatly affect your mental health. It’s important to remember that nothing is worth more than your well-being.
b. The Reality of Credit Scores
Credit scores are not the best measure of financial health. A low credit score can change in a few short years, even after bankruptcy. Your goal should be to be debt-free, not to maintain a high credit score.
8. Discarding the Stigma Associated with Seeking Help
a. Overcoming Embarrassment
Many people hesitate to seek debt help due to feelings of embarrassment or fear of judgement. However, it’s important to remember that money management is a lifelong skill, and everyone makes mistakes.
b. Embracing the Support
Financial difficulties can happen to anyone, often due to circumstances beyond our control. There are professionals ready to help you navigate these challenges and provide solutions to make you debt-free.
**To learn more about managing debt and your options, connect with a local Licensed Insolvency Trustee today – **book your free debt consultation now.
