At a presentation we conducted last night on Tackling Personal Debt, we were asked some excellent questions. One of them was to the effect of: will you be discussing “Good debt vs. bad debt”?
It’s tax time again for Canadians, that annual spring ritual we all dislike, but must do. Apr. 30th is the deadline for submission to avoid late penalties.
Few Canadians are aware of a little-known fact: income tax debt can be included in a Consumer Proposal or bankruptcy, just like any other unsecured debt. We have many clients this time of year who are under a tremendous tax burden that they cannot manage (either income tax or HST/Director’s Liability from their businesses). Often, an insolvency is the only way for them to get a fresh start and move on with their lives, and get the CRA (Canada Revenue Agency) off their backs.
CRA debt can be crippling, especially if taxes have not been filed for a long time or are related to a limited company (corporation). A Consumer Proposal may be the answer for you if you are faced with such a situation but want to avoid a bankruptcy. A proposal allows you to keep control of your assets and make as much income as you can.
Give us a call for free advice! It doesn’t hurt to talk to a professional.
According to Statistics Canada, household debt-to-disposable income is now higher than that of the United States (Globe and Mail). For every dollar of annual disposable income, Canadian households owe $1.53 in debt (all debts, including credit cards, mortgages etc.).
US News and World Report has published guidelines for these ratios. A healthy debt load should be below 36%. 43-49% is a level for which financial difficulty is imminent unless action is taken. And anything above 50% suggests seeking professional help immediately to commence aggressive debt reduction.
This is not to suggest that most Canadians need to take such dramatic action. But it does highlight the seriousness of the average Canadian household’s debt levels. With dropping savings levels, and with ongoing increases in consumer debt such as credit cards and especially lines of credit, Canadians need to be putting plans in place to get their debts under control. If (when…) interest rates go up, it may push those who have significant debts into levels they can no longer support.
Budgets without discipline are often set to fail. But there are a few ways to minimize and/or reduce debt without drastic belt-tightening. The Financial Consumer Agency of Canada provides some advice.
1. Keep track of spending (everything for one month). You’ll be surprised what you learn.
2. Put needs before wants.
3. Stop using credit cards.
4. Avoid ‘buy now, pay later’ offers.
5. Reduce small, recurring expenses ($5 lattes, pack your lunch etc.)
6. Reduce banking fees (shop around).
7. Pay highest interest debts first. Obvious, maybe, but most effective.
8. Contact your creditors. You may be surprised what they can offer.
9. Get a consolidation loan.
10. TALK TO AN EXPERT. A Trustee gives free advice by law. Why not?
Do you have joint debts with someone? Do you really understand what that can mean?
If you are co-signed on a VISA, for example, with your spouse, you are then responsible for 100% of that debt. Not 50%. We often hear how surprised people are when they learn this. The banks are happy to get a second name on an account for the simple and sensible reason that they then have two people to go after if the debt goes bad.
Likewise, if a spouse includes a joint debt(s) in a bankruptcy or proposal, the full debt then lands on the other spouse. So often a couple with joint debts will file a double proposal to clear them all. 0% interest, and open.