WEYBURN - Most households are very familiar with debt and struggle with making ends meet because of debt problems. In the past few decades, household debt has crept upwards with more people willing to take on greater amounts of debt.
Most of the time these debts are caused by credit card debt, student loans or mortgages. But unfortunately, some people have debt simply because of bad circumstances, such as unemployment, business setbacks and medical emergencies.
As the debt piles higher and higher, more of that debt is cutting into people’s paycheques, sometimes eating up 25 per cent or more of their take-home pay. Finance experts say that this is just too much debt. The recommendation is that individuals spend no more than 10 per cent of their paychecks on debt (excluding mortgages).
Personal debt is an ongoing concern for both consumers and economists alike. According to a Statistics Canada report, Canadians owe $1.65 for every after-tax dollar they earn. However, a low percentage of Canadians (30 per cent) have the financial management to reduce or eliminate their household debt, according to a new study released.
In that same report, 24 per cent of respondents said their top priority is investing efficiently and 23 per cent said saving more was most important. Budgeting and spending on personal needs or goals were also top priorities, but were ranked low by responders.
There are so many individuals and families who struggle to make ends meet, and often the biggest reason for these struggles is because of household debt.
It is always a good idea to take the time to re-evaluate a financial plan on a regular basis. It is important to remember that saving, investing, borrowing and spending priorities do shift over time, and can change quickly due to changes that happen in life.
Priorities for a financial plan will be different for everyone. Sometimes a financial plan will revolve around saving for an ultimate goal, such as retirement, or vacation, or house purchase.
When it comes to paying down debt, most people focus on paying the highest-interest debt first, since this is often the biggest financial drain.
There is also the ‘snowball’ method, which focuses on paying off the debt with the smallest balance first, while making minimum payments (or more) on other debts. Once that smallest debt is paid, those payments can be focused onto the next lowest balance.
It is also important to know the difference between good and bad debt. Good debt is defined by three factors: the item being purchased is a necessary part of the household, the debtor can afford the monthly payments, and it can be paid off in a reasonable amount.
