What to Do When You Have Too Much Debt to Handle

For many individuals, debt is an unavoidable part of life. It allows us to make sizeable purchases, such as a house or a car, or invest in our education. However, when your debt spirals out of control, it can lead to severe financial stress. Understanding when and how to manage an overwhelming amount of debt can be crucial in maintaining financial stability. In this article, we will dissect the steps to take when grappling with the question: “What to do when you have too much debt to handle?”

Understanding Your Debt

To begin, it’s essential to understand the different types of debt you may have. These can range from unsecured debt, such as credit card debt, tax debt, or student loans, to secured debts like mortgages or car loans. The average person may owe up to $52,000 in unsecured debt, not including their mortgage or a secured car loan. Understanding the type and amount of debt you have is the first step towards regaining control of your financial situation.

Assessing Your Debt-to-Income Ratio

One critical factor to consider in determining whether your debt is too much to handle is your debt-to-income ratio. This ratio is a percentage that shows how much of your income is consumed by debt repayments. Financial institutions often consider a Total Debt Servicing Ratio (TDSR) of more than 40% as risky. However, even a 20% debt service ratio could be a cause for concern if it only includes minimum payments on your debts.

Recognizing Warning Signs

Several warning signs can indicate that you are carrying more debt than you can handle:


  • Living paycheck to paycheck and using credit for necessities.
  • Continuously rolling over your credit into new credit.
  • Only making the minimum payments on your debt.
  • Regularly using overdraft protection on your bank account.
  • Utilizing expensive credit forms like cash advances and payday loans.
  • If you find yourself resonating with these signs, it may be time to seek help.


Dealing with Debt: What Are Your Options?

When dealing with a mounting debt problem, you have several options to consider, including credit counselling, consumer proposals, and filing personal bankruptcy. Each option provides a unique timeline for getting out of debt and will have a different monthly cost.

Debt Management Plan

A debt management plan is a program offered by credit counsellors. It involves determining your monthly payment based on the amount of debt you owe, divided by 60. For instance, if you owe $20,000 in debts, your monthly payment under a debt management plan would be $333 over five years.

Consumer Proposal

A consumer proposal is an alternative to bankruptcy, allowing you to settle your debts for less than the full amount owing. Your exact settlement will depend on your income and the assets you own. A consumer proposal could reduce your monthly payment to a fraction of what it would be under a debt management plan. For example, if you owe $20,000, your monthly payment could be as low as $117 over five years.

Personal Bankruptcy

Personal bankruptcy may be an option if you cannot afford a proposal to your creditors. The cost of bankruptcy and its duration depends on your income. If your income is below a certain government limit and this is your first bankruptcy, you could be debt-free in as little as nine months.

Debts Don’t Disappear on Their Own

Debts do not magically disappear. Even if bad debts are purged from your credit report after six years, the debt itself remains. Creditors and collection agencies will continue to call, and they may even attempt to sue you. Unpaid debts can also make it challenging to get approved for purchases like a car or house, leading to high interest rates and a lack of control over your financial future.

Overcoming the Barriers to Seeking Help

Many people delay seeking help due to reasons like embarrassment, lack of knowledge about the help available, hope that their situation will improve, or the belief that being in debt is normal. The sooner you seek help, the sooner you can regain control of your financial situation and start your journey towards becoming debt-free.

The Bottom Line

In conclusion, if you find yourself wondering what to do when you have too much debt to handle, remember that you have options. Understanding your debt, recognizing the warning signs, and seeking help from professionals can guide you towards a path of financial stability. Don’t let the weight of debt control your life. Instead, take control and work towards a debt-free future.

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