Being in debt feels like you’ve dug yourself into a deep hole. You’re looking up at the surface and wondering how you’re ever going to get yourself out. Don’t panic. By making the right moves, you can slowly climb your way out of that hole and get back to normal. Read ahead to find out how you can start getting out of serious debt right now.
Signs That You Are in Serious Debt
There is a difference between being late on one small credit card bill and being insolvent. The former is an unpleasant but temporary situation. You can take care of that bill when you have enough money and work hard to make sure the mistake doesn’t happen again. It’s a blip on your financial radar. The latter means that your debt isn’t a temporary fix. It will take you a long time to pay off — and you’re not entirely sure how you’re going to do it. The goal can feel impossible.
One of the biggest signs that you are coping with debt is that you are in a continuous state of financial stress. Your money problems are on your mind all day and night. The anxiety creeps into your thoughts when you’re at work, distracting you from important tasks and team meetings. It pesters you when you’re lying in bed at night, keeping you from getting restful sleep. That intense worry may not go away until your debt is gone.
Another sign that you’re in serious debt is that you can’t imagine a future of financial stability. You have no savings plans or nest-eggs for when you’re older because you’re too busy trying to tackle the payments that you owe. It’s hard to prepare for future decisions when the consequences of your past decisions are getting in the way. You’re not alone in this. According to a poll commissioned by BMO, 34% of Canadians are planning to win the lottery as a way to fund their retirement. The chances of that plan working out are extremely slim.
Another sign is that you’re committing financial infidelity — this means that you’re hiding something serious about your financial situation from your romantic partner, or you’re outright lying about it. Many debtors do this because they’re embarrassed about the state of their personal finances, and they’re worried about what their partner will think of them when they learn the truth. Some are even afraid that their partner will leave them because of this.
Here are other common clues that you’re in serious debt:
- You’re using credit card checks or cash advances to pay your bills
- You have maxed out a credit card
- You’re always paying your bills late
- You’re getting collection calls from agencies
- You’re often asking your friends and family members for money even when you know that you can’t pay them back
- You’ve sold items or taken on jobs in order to have some extra cash
How Do You Get out of Serious Debt?
Step One: Commit to Getting out of Debt
You can’t invest a little bit of effort into this goal. You have to give it your all. Say “yes” to committing to the goal — not “maybe” — and go from there. If you need some motivation, read stories about other people getting out of debt and achieving their dreams of financial stability. These examples can show you that your end-goal isn’t impossible to achieve. And they can give you some ideas on how to save money and cut expenses effectively.
Step Two: Make a Record of Your Financial Situation
Start by calculating your income and all of the savings that you have in your bank account. This gives you an idea of how much you have available to take care of your everyday expenses, along with your debt. You’re going to have to stretch this amount as much as you can.
Then, you need to tally up all of the debt you have. If you’ve acquired debt from multiple creditors, add it together into one lump sum. The total will give you a clear idea about what your financial goals should be.
Step Three: Set Financial Goals
After you’ve figured out the amount of debt you have, write the number down. Reaching that number is your ultimate goal. It’s going to look intimidating, which is why you need to divide up this massive goal into smaller ones.
For instance, saying to save up an extra $5000 in a year sounds like a big demand. Saying that you should save $15 a day by bringing lunches to work or skipping café drinks doesn’t sound as scary. But, $15 a day gets you over $5400 by the end of the year. By dividing up your goal, you can guarantee that the entire experience feels less overwhelming and stay motivated along the way.
Step Four: Set up a Budget
You need to start a household budget as soon as possible. It’s a list that displays your income and expenses in one place, so you’ll never be surprised by a bill payment again. It’s also a guideline that encourages frugal spending and responsible saving habits so that you can whittle down that lump-sum of debt every single month.
If you don’t know how to make a budget, you should visit our website’s “How To Budget” page. Print off the budget spreadsheet and then follow the page’s instructions. If you’d rather not do this process on paper, you can download an app like You Need A Budget or Mint to help you build a practical budget on your phone.
Step Five: Track Your Progress
Keep an eye on your progress. The more debt payments you make, the closer you will be to reaching your ultimate goal. Watching the numbers go down will keep you motivated to stick to the budget.
You can keep track of your progress through a written journal or through one of your budgeting apps.
For additional help, you should tell your romantic partner about your debt. It’s better that they find out the truth sooner rather than later. When you’re trying to accomplish an ambitious goal like eliminating your debt, you could really use the support of your partner. They can motivate you to make changes, encourage you to save more and hold you accountable when you falter.
Step Six: Celebrate Your Successes
The road to getting rid of your debt can be long. Setting yourself for months and months of sacrifice without any reward will chip away at your motivation and make you feel like giving up. You deserve to celebrate your victories, even when they’re small. You should be proud that you accomplished something so hard!
You also need to plan a special celebration for when you accomplish your end-goal of eliminating the entire debt. It’s a momentous occasion, after all. Some people even consider paying off debt to be as big of a milestone as getting married or buying a house.
Ask yourself what you would like to do when you’re officially debt-free. This long-time debtor made a viral dance video after paying off over $200,000 in student loans on her own. This woman threw a funeral for her student loans that she spent six years of her life paying down. You could plan a house party, restaurant dinner, spa trip or exciting vacation — whatever you like! A lot of people save up just a little longer so that they can really celebrate the significant achievement.
Getting Professional Help
Taking care of your debt can be difficult to do on your own. Sometimes you need to get professional assistance to reach this ambitious financial objective.
Credit Consolidation Loans
It will be tempting to seek out credit consolidation services to get out of your debt faster. You’re unlikely to get a debt consolidation loan from a traditional bank. They will want you to have an excellent credit history, a steady income and strong home equity before lending you anything. It’s unlikely that you’ll qualify.
So, in that case, you’ll have to go to a private lender that doesn’t have such restrictive standards. It sounds like the perfect solution, but it’s too good to be true. Debt consolidation loans from private lenders have high interest rates. It’s an incredibly risky move that could put you into deeper debt.
Debt Management Programs
Another option is to go to a debt management program. A credit counsellor contacts your creditors and tries to negotiate an agreement to reduce the amount of interest you are being charged.
While this can be helpful, you should be aware that this agreement is not secure whatsoever. Creditors are not legally bound to stick with this negotiation. The option can technically be advantageous to anyone who wants to shrink their interest rates and tackle their debts, but there’s no guarantee that creditors won’t change their minds the next month.
If you really need professional assistance, make an appointment with a licensed insolvency trustee (formerly known as a bankruptcy trustee) to access their financial debt counselling services. They offer debt management, budgeting and credit counselling.
What Can You Do If You Can’t Pay down the Debt?
Sometimes your hard work won’t pay off. You made a practical budget. You cut down your expenses. You saved and saved, but the burden doesn’t seem to be getting any smaller. It’s a terrible feeling, but that doesn’t mean you have to live with the debt forever.
When you’ve tried to tackle the problem on your own and it doesn’t work, you should come to your trusted debt settlement company to see a licensed insolvency trustee for a consultation. They can help you figure out what debt relief option will work best for you. You will have two options to choose from: a consumer proposal or personal bankruptcy.
A Consumer Proposal
A consumer proposal is a legally binding agreement made between a debtor and their creditors. It’s designed for debts of up to $250,000 in unsecured credit — this means credit cards, payday loans, utility bills and payments to the Canada Revenue Agency. The debtor proposes a lowered amount of debt to pay off. If the majority of the creditors agree to the proposal, the debtor has up to five years to make these payments and then the rest of their debt will be considered cleared.
The benefits of filing for a consumer proposal:
- The debtor’s assets will be unaffected by the decision.
- Any additional income or assets will not be factored into the payment plan.
- A consumer proposal is not likely to hinder employment opportunities. Depending on the job position, bankruptcy could be a career roadblock.
Personal bankruptcy is available to individuals who owe more money than the total equity of their assets. If a consumer proposal is not feasible, then filing for a personal bankruptcy could be your next best option. The personal bankruptcy process is designed to settle your assets (there are several asset exemptions in Ontario), disburse the results to your creditors and release you from the legal requirement of paying those creditors. Ask your licensed insolvency trustee about the benefits of choosing to file for this form of debt relief.
Come To David Sklar
All of our trustees are licensed by the government and are highly-experienced in guiding clients toward financial stability. If you’re looking for confirmation of satisfied customers, you can find hundreds of five-star reviews about David Sklar on Trustpilot and Google. We were awarded the Licensed Insolvency Trustee of the Year at CV Magazine’s 2019 Canadian Business Awards. And we were named ThreeBest Rated’s Best Business of 2019. So, whether you need to file for a consumer proposal or start credit counselling, our trustees can definitely help.
Getting out of debt is difficult, but it’s not impossible. Tons of people have managed to do it before you. With hard work, determination and some professional assistance, you can be one of those people who climbs their way out of the hole and gets back to stable ground.