The holidays have come and gone, but the debts (old and new) are still there and will not go away any time soon. Perhaps the time has come for you to give yourself a financial checkup.
Often times when people get caught up in the excitement of the holidays, overspending occurs and when the credit card statements come in the mail, you find yourself doing a juggling act of “borrowing from Peter to pay Paul.” This can cause stress in your life and derail future plans.
Without a realistic financial plan to deal with your debts and your living expenses, you may find yourself in a situation of defaulting on critical payments such as your mortgage or your car loan. This can lead to foreclosure on your home or the seizure of your vehicle if not corrected.
Previously I have discussed alternatives to dealing with your debts such as consolidation loans and consumer proposals. These are viable alternatives worth considering if your situation is such that you are unable to meet the payments on your debts each month.
Prior to choosing a debt reduction plan, you should first perform a detailed assessment of your income and expenses as a basis for evaluating your current financial situation and to establish a budget for the current year. A budget is a financial road map that estimates your income and expenses over a period of time, such as a month or a year. It is a helpful financial tool to control your spending and reduce your debt, but only if you have the self-discipline to stick to it.
The first step in developing a financial budget is to list all of your sources of income (for most of us this will be the after tax take-home pay from work). Then make a list of all of your expenses, no matter how small, as well as payments made on your mortgage, loans and credit cards. Categorize your spending under household, groceries, clothing, automobile, entertainment, etc.
Now the hard part begins. Prioritize your monthly payments and expenses on the basis of most important to least important. Then go through them again and honestly assess which ones are truly “needs” as opposed to “wants.” Payments on your mortgage and car loan would be a need as would groceries. The daily $5 flavoured coffee is likely not a need. Any expense that you determine is a want may have to be eliminated or deferred to balance your budget in a given month.
Once you have completed this process, you will be able to see if you can manage your debts without seeking out a debt solution alternative such as a consolidation loan or a consumer proposal.
If you determine that you will need some assistance to develop a budget and deal with your debts, it may be beneficial to discuss your financial situation with a non-profit credit counselling service or your financial adviser.
» Wayne K. Palmer is a senior manager in BDO’s Brandon office. He is responsible for both the consumer and commercial practices in Brandon and surrounding areas, including Boissevain, Minnedosa, Neepawa and Dauphin. Wayne has more than 25 years experience in the financial recovery services field.