A Guide to Family Finances and Living Debt Free

Table of Contents

Debt can come in all sorts of shapes and sizes, and debt problems can happen to people of all walks of life. In many cases, dealing with debt is a family affair. The financial strain of limited resources and the emotional pressure of living in financial uncertainty is felt by all family members, young or old.

In cases where a family is facing insolvency, their position could be attributed to major changes in their personal life. Marriage, divorce, the death of a loved one, medical issues, work-prohibiting injuries, or any other stroke of misfortune can be the root cause of a family’s struggle with debt.

Living debt free as a single person is a challenge, but tackling your own debt issues and the debt you share with a spouse while keeping up with the living expenses that come with children is extra challenging. In a dynamic where a family is struggling with debt, it’s important to educate children on the best ways to deal with finance.

Even if you and your partner are learning healthy financial habits for the first time, it’s best to communicate with the entire family, share important financial milestones, and be transparent about why certain money decisions are being made.

Debt: A Complex Group of Issues

Debt Levels Are On the Rise

There can be all sorts of compounding factors that can lead a family to insolvency. Perhaps there’s been a change in employment and the gross income of the family is no longer enough to keep up with the mortgage. What’s more, the current financial climate of the country is such that living with debt is increasingly becoming the norm.

Canadian debt levels have been on the rise for decades now, and as it stands the average family owes $1.78 for each dollar of their disposable income. Back in 1980, that number was just 66 cents. Here’s another alarming statistic: the country’s overall household debt has gone up 54% in the last decade and currently stands at $2.2 trillion.

Additional Financial Factors

Combine these current-day debt standards with other factors like lingering student loans, credit card debt, the price of weddings, the cost of purchasing a home, the costs to raise a child, and you’ve got a perfect storm for financial stress and instability.

Financial Warning Signs

Even in what might seem like difficult and insurmountable debt circumstances, families should not stop asking themselves: what does it take to live debt free and how can we do it? You can be in a position where you’re considering filing for bankruptcy and still make a full financial recovery and get a second chance at making your financial dreams a reality.

If you’re struggling with debt and the costs of providing for your family, how do you know if your debt is problematic or if it’s simply just a way of life? For starters, you need to be able to identify the financial warning signs of troublesome debt. Consider what your spending habits are and how much of your income is going towards debt repayment. If any of the following warning signs of insolvency sound familiar to you, then you need to click here today and get started with a credit consultation from a Licensed Insolvency Trustee.

Financial Warning Signs You Should Be Aware Of

Just because people don’t talk loudly about their financial issues doesn’t mean that people aren’t struggling with insolvency every day. Many consumers and their families can unexpectedly arrive at a level of debt that cannot be ignored.

You need to take the time to review your finances and address any potential insolvency issues. Here are some of the early warning signs of financial troubles that you need to be able to recognize.

  • You often receive calls from collection agencies.
  • You are making credit and loan payments late and when you do make them, you only make the minimum payments.
  • When you add up all the minimum payments of your debts, the total is greater than 20% of your gross income (this excludes secured debt like car payments or the mortgage).
  • You’re using one credit card to pay off another.
  • You’re using credit for essential, everyday purchases like food, medication, or the rent.
  • No matter how much you try, you still have little to no savings.
  • You or your spouse are experiencing wage garnishment as a result of having defaulted on loans for too long.
  • You experience physical symptoms of stress because of your debt such as insomnia, emotional irritability, anxiety, digestive issues, or more.
  • You desperately want to get out of debt but don’t know how and can’t imagine how you would accomplish such a feat.
  • You don’t know how to budget (or, if you do, you cannot create a budget that is balanced, reasonable, and that you can follow).
  • You are hiding financial realities from other family members and loved ones.
  • You do not have a full scope or understanding of just how much you truly owe.

Insolvency is a term that refers to the financial state of being where you cannot meet your financial obligations and you cannot reimburse the debts you have incurred. In some cases, the debt that you owe might seem manageable, but if you look into the long-term you realize that your debt will collect interest at such an accelerated rate that you simply cannot keep up.

There are different levels and severities of insolvency, and in some cases, you won’t need to take serious action in the form of legal proceedings such as filing for bankruptcy or filing a consumer credit proposal. In some cases, credit counselling is enough for an individual and their family to address the root cause of the financial issues and come up with a debt repayment plan and modified budget in order to get out of debt.

Licensed Insolvency Trustees (LIT)

Credit professionals who help individuals and even small businesses with serious debt issues that call for bankruptcy or consumer proposals are called Licensed Insolvency Trustees, or as they were formerly known, bankruptcy trustees.

These licensed credit professionals are the only ones who can actually file the bankruptcy or consumer proposal for you. Since you are going to be working with this professional and communicating with them until you have fulfilled the criteria of your debt recovery plan, it’s important to work with a trustee who you are comfortable with, who understands you, and who you trust.

Teaming Up with the Right Bankruptcy Trustee

Your trustee is technically appointed by the Court to administer your bankruptcy or consumer proposal. When you first contact these credit professionals for a consultation about your financial situation, they will assess your particular circumstance and advise you on the best way to proceed.

Ultimately what you do is your decision, but the knowledge that these professionals have is invaluable. They can show you what the best form of debt relief is for the types of assets that you own, ensuring that whatever path you take will enable you to hold onto as many assets as possible while reducing the amount of debt you owe as much as possible, too.

When you meet with a trustee, ask them questions about what the bankruptcy and consumer proposal process is like. Use your consultation as an opportunity to learn about the possible solutions to your financial problems, and ask them about previous clients who have been in similar situations to yours.

Especially when you’re dealing with family debt and debt recovery, you will have a whole host of emotions and plenty of moving pieces to consider in your financial decision. Make sure that whoever you work with takes the time to understand you and your circumstance and that you leave your first meeting feeling satisfied with the amount of information they offered and the rapport you shared.

The “Why” Behind Debt-Free Living

If you’ve been following along with this article up until now, then you’re aware of how stressful and difficult it can be to live with overwhelming debt. Still, in order to be successful in achieving your goals of living a life free from debt, you should identify why you and your family want to live this way. Setting a goal and having honest, concrete reasons for why you want to achieve that goal is an essential step to take for staying on track.

Your family’s path to debt recovery won’t be easy, so being able to remind yourselves of why you’re doing it in the first place can help you stay motivated and accountable to one another. You may have all sorts of reasons for wanting to live free of debt. Being able to free up funds from regular debt payments leaves you and your family with more financial freedom, a sense of security, and the financial comfort you need to hit your next financial milestone.

As you, your spouse, and other members of your family come up with their reasons for wanting to have more financial freedom, don’t hold back from being specific. It could be that you want to open up a college fund to save for your child’s future. You could also want to be able to make regular contributions to your RRSP, or maybe you dream of homeownership but just can’t see it happening with the debt you currently have. You could write down your goals on a piece of card paper and post it up on a bulletin board where you could regularly see it and remind yourself whenever you need to remind yourself of your long-term goals.

How Quickly Do You Want to Lower Your Debt?

Your legal debt recovery plan that is regulated by your bankruptcy trustee will have a specific time frame to it. You will have to decide on the length of your consumer proposal or your bankruptcy if you are going through either of those proceedings. If your debt problems can be resolved with counselling, then you should still come up with a debt repayment plan with the help of a credit counsellor. Together, you can decide on how quickly you want to pay off your debt and come up with a strategy that will allow you to stick to your ideal time frame.

To pay off debt faster, you have to be able to lower your basic expenses, make more money, or somehow do both. When it comes to lowering your expenses, you’ll have to commit to downsizing and living with less to pay off your debt. You could move closer to your work in order to spend less time commuting and less money on daycare for the kids. If you drive two cars, maybe it’s time to switch to just one. You can cut costs on your grocery bill by buying according to sales, and you can get rid of extra entertainment expenses like cable packages.

If either you or your spouse has a skillset that would allow you to pick up some freelance work, you could make some extra money while still staying at home with the kids. You could also make some more money by selling some of the things you don’t need on resale sites like Kijiji or Craigslist. Want to pick up some more pointers on how to live frugally? Just check out these tips and find out which strategies you can use to pay off debt faster.

Educating Your Kids About Finances

Getting rid of debt as a family will require communication and honesty among family members. As you go through the process, you should take advantage of the opportunity to teach your kids about finances and instill in them a healthy money mindset where they can differentiate between needs and wants, know how to avoid impulse buying, and even have a basic understanding of how credit works.

Kids are likely to follow by example and pick up the money habits they see in their parents. This means that as much as they can pick up bad habits, they can also pick up good habits, too. As role models, use the debt recovery process as an educational experience for your kids. Show them what it’s like to keep debt low, make a budget, and stick to that budget.

Show them how to rebuild credit and teach them the importance of good credit, too. You don’t have to go through the financial stress of living with debt alone. Bankruptcy trustees are there to guide you through debt recovery and to re-ignite the light at the end of the tunnel of difficult debt. Don’t wait any longer to regain control of your finances. Consult with a credit professional right away.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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