Credit Counseling with
the Sudbury Community Service Centre
Diagnosing A Debt Problem
The shape of your financial fitness has a lot to do with your debt
level. Living without debt may be the dream of many Canadians today
but it is not always the reality. Many times unexpected expenses
force us to incur more debt than we can handle. Sometimes poor
judgment or lack of budgeting can also be contributing factors.
Some debt is fine, and in fact the wise use of credit is an integral
part of most people’s financial planning. Determining when you are
overdosing on debt is the key to maintaining financial balance in
To decide if your debt level is nearing the danger zone, calculate
how much debt you have relative to your annual income. Once your
debts, excluding mortgage payments, begin to nudge up past 15% of
that income, you could be headed for trouble. Sometimes even 15% is
too high. If you find yourself worried about your debts on an
ongoing basis, they are probably too high. The characteristic signs
of credit trouble include using one credit card to pay another, not
being able to make all your minimum payments each month, using
credit cards for necessities (such as groceries) and spending more
money than you have coming in each month.
The simplest solution for too much debt is, of course, to pay if
off. While we all realize that it’s easier said than done, there are
ways to tackle the problem.
• Don’t incur any more debt until you’ve reduced or, preferably,
eliminated your current debts.
• Use your current savings to lower your debt load. The interest
being made from your money in a bank account is minimal compared to
the interest you are being charged for the ongoing debt balance.
• Start by repaying the debts that carry the highest interest rates
– usually credit cards and car loans.
• Liquidate assets you don’t need and use the proceeds to pay off
debt. (However, consider carefully before using RRSPs to pay off
debts. You are borrowing from the future and could incur tax
• Consolidating your loans into one overall loan with a lower rate
is an option if your credit rating and cash flow are good. Be sure
not cancel or destroy any credit cards that are paid off in a
consolidation. Charging up a credit card paid off through
consolidation will not improve your situation.
• Switch the balance on your credit cards to low-interest credit
cards – but be sure to pay off and close the first cards when this
• If interest rates have dropped since you took out your car loan,
go to your bank and ask for it to be refinanced. They are usually
willing to negotiate with you.
• Seek the help of a not-for-profit credit counseling agency who can
assists you with budgeting and even debt repayment if necessary.
• When the balance of one debt has been eliminated, use that debts
usual monthly payment to increase payment on another debt.
Remember that if you have used your savings to get out of financial
trouble consider it a debt as well and pay it back to yourself once
you are able to. It is always a good idea to have at least three
months of bill payments (utilities, mortgage, insurance) in the bank
at all times as a cushion. This cushion can be very helpful in
dealing with unexpected events such as vehicle repair, loss of
employment, illness or injury.
Ongoing debt problems can be the cause of serious stress related
issues and is the primary reason for the majority of divorce and
separation in Canada today. Take control of your financial
situation, and in turn, take control of your life.
For more information contact the Sudbury Community Service Centre at
(705) 560-0430 or 1-800-685-1521.