Debt Counselling Consultants: How Much Debt is Too Much to Handle?

Almost everyone has experienced being in debt at some point in his or her life. In fact according to a report released by Equifax Canada, the average consumer has a total non-mortgage debt of just below $21,000. As almost everyone also knows, however, there is such a thing as too much debt.

Do you feel like you’re struggling just to make ends meet? Is most of your income going directly to the collectors rather than your savings account? Here are a few tips from debt counselling consultants to help you know if you are way out of your debt comfort zone.

Calculate Your Debt Payments

The first thing you should look at is how much your monthly debt payments are. These normally come in fixed amounts so calculating should be easy. Add up all of your house and heat taxes, credit card payments, mortgage payments, car payments, student loans, and any other debts. Include personal loans you have made from family and friends. This amount is referred to as your debt load.

Estimate Your Budget

Now that you know your debt load, come up with a budget that would support your current lifestyle. With your debt load in mind, you can begin estimating the amount you will need to maintain basic supplies. The trick here is just to focus on the essentials, and to be careful on what to spend the leftovers on. This will help you manage your finances and avoid even more debt that you cannot afford to have.

Know Your Debt/Income Ratio

According to the banks, your total debt load should not exceed 40 percent of your monthly income.  Going above this will reflect negatively on your credit standing, as this indicates you’re not living a very frugal life. If you want to keep your debts in check, keep this same standard. A more detailed way of doing it is to take your monthly debt and divide it by your monthly income. For example, if you have a monthly debt of $500 and your monthly income is $2,500, you will have a debt/income ratio of 25 percent. A 20 percent debt/income ratio is considered to be in the danger zone.

If you are in a financial pinch because of debt, you will benefit from debt counselling from trusted consultants in BC, like Blair Greenwood of 4 Pillars Debt Consolidation & Credit Rebuilding for Victoria, BC. They can help you come up with plans to manage your debt better and give you breathing room from creditors.


Debt Load, Practical Money Skills Canada

How Much Debt is Too Much? Guidelines for Managing Debt, My Money Coach