A Guide to Family Finances and Living Debt Free

How to Manage Your Family Finances to Stay Debt Free

Canadians keeping an eye on the news of late may be slightly alarmed to see that experts predict doom and gloom for debt across the country.

Statistics consistently reveal that Canadian families are spending as much as 14.9% of their incomes on debts alone.

Even more worryingly, 7.3% of that is towards interest rates – the highest amount in nine years.

In short, finances aren’t looking great for Canadian families right now, and those figures only look set to rise in light of changes to mortgage payments and more.

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In fact, rises in the last decade alone have seen debt increase by 54% to around $1.78 for each dollar of disposable income.

It’s no wonder we’re all getting a little hot under the collar, but it’s not a cycle you need to be stuck inside.

After all, while 47% of families do predict struggles this year, that leaves 53% in the clear, and it’s well within your power to join them.

Yet, before you can achieve that, you must address and overcome any cash flow problems you may be facing right now.

And, that’s a goal we’re hoping to help you with using this guide to family finances and living debt-free.

The leading reasons for household debt

Household debt happens for all manner of reasons, but there are some frontrunners for this escalating problem.

Some, but not all, of the reasons debt is so prevalent right now include:

Financial illiteracy

Financial illiteracy is quickly coming to the fore as a leading contender for many debt problems.

In fact, despite 70% of participants in a recent Loans Canada study claiming they felt financially knowledgeable, the results pointed towards a very different reality.

Rather than knowing what to do to keep above the financial water, as many as half of that 70% were failing to track expenses or even pay credit card bills in full, with many believing even minimum payments meant no interest.

Worse, those more confident participants typically showed higher levels of debt than those that claimed financial illiteracy from the off.

Overall, this seems to reveal that we don’t know quite as much about money management as we like to believe.

It certainly suggests that those looking to steer clear of debt could benefit from help doing so.

Poor money management

Along roughly the same lines, money management is also a significant problem for many Canadian families.

By failing to track spending and even manage existing debts, countless families are finding themselves in a debt spiral that they can’t break.

54% of Canadians find it hard to make ends meet for this reason, with families especially struggling to manage joint finances adequately.

A default towards borrowing

Many Canadian households also seem to default towards borrowing, even once they’re dealing with existing debts.

Returning to that initial Loans Canada study again, as many as half of the already credit-constrained participants reported taking out multiple loans, with 44% doing so just to cover necessary expenses.

High student loans

An average student debt of $26,000 is also to blame for many family’s money management problems.

This has become even more the case since changes to bankruptcy law in 2008 that state student debt is exempt from bankruptcy filings until students have been officially out of all education for seven years.

In other words, this is the debt that just keeps on giving, and it’s typically on the cards from an early age.


An average of 38% of all Canadian marriages end in divorce, and it’s not a cheap process.

Even an uncontested case can set participants back by around $2,547, with that figure rising as high as $74,122 in more complex matters.

Unsurprisingly, then, this is yet another issue that can lead to crippling household debt for both families and the individual partners involved.

A lack of savings

A lack of savings is another pressing reason for issues here, with a recent MNP study revealing that seven out of every ten respondents didn’t feel comfortable facing abrupt financial setbacks.

For these individuals, turning towards high-interest debt options, including payday loans, can often seem like the only option for even inevitable and straightforward lifestyle costs such as car repair and more.

Signs that you’ve fallen into the debt spiral

While you might assume it would be evident if debt were an issue, loan repayments can be such a standard part of daily life that many of us don’t even realise them.

Still, some sure signs that you’ve fallen into a dangerous debt spiral that could easily end in insolvency include:


  • Your total debt payments add up to 20% or more of your overall income;
  • You use one loan to cover the costs of another;
  • You’re forever facing unpaid bills and calls from creditors;
  • You have no savings to speak of;
  • Money management is an impossible goal because of debt payments;
  • Debt causes you emotional/physical stress;
  • You rely on a credit card for even necessary expenses like food;
  • You find that you hide financial issues from your family;
  • You’re beginning to feel like you can’t continue dealing with expenses alone.


Finding a way forward

Issues like those mentioned above are undoubtedly tricky to deal with, and you wouldn’t be alone in trying to juggle those financial balls for as long as possible.

However, if the points mentioned sound familiar to you, it’s a sure sign that you’re reaching a stage where you can no longer keep up the act.

As well as spelling terrible news for your finances, attempting to do so is clearly taking its toll on your family’s mental wellbeing.

To reduce that impact and turn things around, at last, consider instead what it would take to find a viable way forward by taking a reality check in the following ways:

Face up to your debts

Perhaps the first step on this journey is to face up to the extent of family debts.

Remember, those Loans Canada participants didn’t think there was anything wrong with their money management, and yet their debt levels were definitely on the high end of the scale.

Worse, this denial surrounding the true extent of money owed can lead to escalating interest rates or even further lending.

Make sure that doesn’t happen by first sitting down to truly assess the money you owe.

Be honest with yourself about how much of your monthly income is going towards these payments.

Then, consider what that means for everything from your savings to your overall ability to manage money elsewhere.

Be honest with your family

Aside from merely facing up to debts on a personal level, it’s also worth being honest with your family at this stage.

After all, those finances impact them too, and bringing others on board often helps to hold yourself accountable for bad monetary decisions.

In many cases, families even see this as a chance to teach their children about finances, and specifically what happens when money management goes wrong.

While you don’t need to get your youngsters into the nitty-gritty, it may be worth explaining what’s happening and why.

You can then use their impressionable attention as an incentive to set the right money management example moving forward.

Better late than never.

Know your options

Next, it’s vital that you know your options.

In reality, there is a range of different ways to work through debt without adding to it.

By realising this and considering what exactly those options are, you stand your best chance at coming out the other end in the shortest time possible.

The good news here is that there are professionals on hand to help you consider which options would be best for you at all times.

To give you a rough idea, though, your choices will typically consist of:

  • Debt consolidation

While it does have the significant downside of being another loan of sorts, debt consolidation can be a fantastic way to at least help you manage multiple payments each month.

Rather than worry about individual debts and interest rates, this allows you to centralise payments in one easy place.

Typical forms of debt consolidation can include options like refinancing, where you use your assets as security against this further loan.

The company in question will then pay your existing debts and collect one set payment from you each month.

The main thing to note here is that debt consolidation doesn’t clear or even necessarily reduce your debts.

Instead, it simplifies the repayment process, and sometimes lessens payments at the cost of higher interest and longer terms.

  • Consumer proposal

If your debts (not including mortgage debt on a principal residence) don’t exceed $250,000, you’re also eligible for a consumer proposal.

This bankruptcy alternative is favourable for many, as it means retaining assets while still taking back financial control.

Throughout this process, a licensed insolvency trustee of your choosing will write to your creditors on your behalf, proposing that you’ll pay a percentage of the debt you owe within at least five years.

Those creditors will then have 45 days to vote on whether they accept or wish to add further terms.

Ultimately, your acceptance here rides on at least a 50% creditor vote.

  • Bankruptcy

In cases of high debt levels, or where assets aren’t such a concern, bankruptcy can often seem like the most appealing option.

This is because, unlike alternatives such as consolidation, bankruptcy wipes your financial slate clean.

In other words, except for student loans that are less than seven years old, filing for bankruptcy means you don’t have to pay debts at all.

In this instance, a bankruptcy trustee will seize your assets and financial accounts as they declare your legal bankruptcy to relevant creditors.

You will then have to adhere to specific regulations, such as credit counselling, before discharge.

This option isn’t for everyone, as it will involve handing over assets and struggling to seek further credit for the minimum of six years that bankruptcy remains on your file.

But, for families attempting to manage many debts, it’s certainly an option worth considering.

Finding a trustee you can trust

Whichever debt recovery path you choose, having a professional trustee on hand is fundamental to your chances of success.

Whether you simply want advice on the best route for your circumstances or need help with legal processes, a trustee can make it happen.

In cases of bankruptcy, trustees are non-negotiable as you need a legal entity to file your claim and seize all necessary assets, etc.

Even in cases of debt consolidation, however, an experienced trustee can stand by you every step of the way, and help you push for the best possible interest rates.

That’s why it’s so fundamental that you take the time to find a trustee that you trust in your area.

And, this is a step that Bankruptcy Canada can help you with.

Our online trustee location tracker lists the best possible trustees across Canada, as well as providing you with a chance to have a confidential, no-obligation phone call to see if they seem like the right match for your purposes.

Remember, your family’s financial future is riding on this, so let a trusted trustee guide you in the right direction.

Finding your new normal after debt

Of course, debt relief isn’t solely about the processes we go through to clear our finances in the first place.

It also largely comes down to the steps we take to live debt-free once we’re given the monetary all-clear.

Hence why we thought it apt to end with the steps you can take to remain debt-free as you move forward, including:


  • Developing a monthly budget;
  • Setting regular savings aside;
  • Paying any bills on time, and in full;
  • Avoiding taking out loans, etc.;
  • Tracking your spending so that you’re better able to stay on top.


Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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