Ok! You assumed the recession was over last year. So why are you still in as much or more debt than you were two years ago? The answer is not always obvious. You might think everything is well if you are paying the minimum payments on all your credit cards each month. This is not exactly true. If you owe $10,000 on a credit card debt with 18% interest charged it will take you 30 years and 4 months (plus $6.546 of interest) to pay off the card. Miss one payment, make one late payment, buy anything on the card– just keep adding months and interest.
How do you stop the madness?
Plan your recovery properly. Most people have only a vague idea where they spend their money. Start by knowing and reviewing where you stand financially. First, make a list of your debts:
- Name of debt
- Amount owed
- Interest charged
- Minimum monthly payments
Second, prepare a list of any assets you have. Make sure you review life insurance for cash surrender value and RRSP’s or if this list includes any assets that can be cashed and used to pay a high interest credit card. This is a first consideration but please make sure there is no income tax consideration such as when you cash an RRSP.
Third, make sure you do a budget of your monthly living expenses. This sounds easy but it is not. You might have to monitor your spending for several weeks to determine your true expenses paid by cash. The budget must include allowance for periodic cost like car insurance, clothes, children’s sports that may be paid periodically during the year. I have suggested to many people that a savings account be opened to bank this money each month so it is available when needed.
Now the interesting part starts:
Do you have a surplus of money left over each month in your budget to make the minimum monthly payments on your debts? If you do – congratulations – that surplus after making the minimum payments should be used as an extra payments on the credit card that charges you the highest interest. A treat to yourself every once in a while is also a good idea.
What if you do not have enough money to make the minimum monthly payments? The first sign of this is that your debts have been increasing for the past few years even though you always have made the monthly payments. If you review past credit statements you will likely find a combination of missed payments, cash advances or charges on your credit cards of expenses that were shown on your monthly budget. Most of us cannot easily increase our income. The only other choice is to lower expenses. This may require help from an outside person. You may have a relative or friend who can help you in preparing, analyzing and revising your family budget. If you have no such person or if you want absolute confidentiality there are many financial advisors and credit counsellors some of whom are fee based.
Contact Rumanek & Company Ltd. for more information on bankruptcy and debt solutions. Or please fill out the free bankruptcy evaluation form. To learn more please visit our YouTube Channel. Rumanek & Company have been helping individuals and families overcome debt for more than 25 years.