Managing your debt

If you have debt and are feeling bad about it, you are not alone. According to an article by the Toronto Star, citing a TransUnion report (click here to read it), the average Canadian is carrying about $26,000 in debt and that does not even include mortgages. Most people have debt and this isn’t necessarily a bad thing. It can be bad if that debt is too high compared to your income or if the repayment of that debt eats up too much of your income each month. Since the average debt level is increasing, it also means that more people are in bad financial situations.

The best thing to do to bring down your debt and improve your overall financial situation is to consciously manage it. Many people do not actually know how much money they spend on food, entertainment and other expenses each month. It is very important to know this information and to track it each month. In many cases, simply seeing how much money you are spending on various things will enable you to reduce those expenses without any meaningful change to your way of life.

You should then compare that complete list of monthly expenses to your total monthly income. If you are dishing out more than you take in then that means you’re reaching further in to debt to make up the difference. This is not sustainable and you should make cuts to your expenses so that the two sides are in balance without the use of debt. Also, if for some reason you are not earning as much as you can be, then change that. Always earn as much as you can in the situation you are in.

Monthly account balance (income = expenses) is the name of the game to stop the debt bleeding. Once you’ve reached a sustainable monthly balance, try to end¬†every month¬†with a “+” (more income than expenses). You don’t want to just perpetuate your interest payments on your debt. You must look to reduce the debt. Build some level of monthly debt repayment in to your monthly expenses.

Taking these steps will put you on the right financial path.