We regularly talk about the indebtedness of Canadians and Quebeckers in the news. This is a subject of great interest, discussion and concern. The latest polls show that Quebecers are 177% more debt than income. However, despite the abundance of information and statistics, it can be difficult to answer the question: “Am I too much in debt? “. I will try to help you answer this difficult question.
Do you pay your bills on time?
The first sign that you are in financial distress is that you have trouble paying your bills when they are due. This includes including making the minimum payment on your credit cards.
If you are frequently late on your payments or have to constantly borrow money to pay your debts, you are most likely in financial distress.
Is your debt ratio healthy?
Then, a very good indicator for determining whether one is in a situation of over-indebtedness is to calculate one’s debt ratio. Also known as the debt ratio , this calculation makes it possible to know what part of our income (after taxes) we must devote to the repayment of its debts.
In the amount of debt repayment we normally include rent or mortgage, auto loan or lease, personal loans, lines of credit and credit cards.
A healthy debt ratio is below 30-35%. Beyond this ratio and you are financially fragile; that is, your debts are far too heavy in your budget.
I invite you to calculate your debt ratio using our calculator.
Do you have more assets than debts?
Although the debt ratio is a key indicator, it does not say everything. Statistics Canada is proposing a new indicator to measure financial distress more specifically. It is the ratio of debts to household assets.
In establishing your balance sheet, that is to say the list of your assets (house, car, RRSP, investments, etc.) and your liabilities (mortgage, car loan, personal loan, margins and credit cards, etc. .), you will have a better portrait of your financial situation.
Statistics Canada has shown that households whose debts represent more than 50% of their assets are more likely to make minimum payments. In fact, 16% of these households have defaulted in the last year.
Do you have a safety cushion?
If an unexpected financial situation arose, would you be able to get through without having to use credit? For example, if your car required a major $ 1,000 repair, do you have that amount in a bank account?
All financial advisers agree: it is important to have a fund of emergency to alleviate the vagaries of life. There is no exact rule for determining the amount of the cushion, but generally at least one to three months salary is suggested. Moreover, this money should be liquid, that is to say easily accessible. It is not advisable to invest one’s emergency fund on the stock market because the price of the stock might just flicker as you need your money.
What if I am in financial distress?
There are several solutions to solve his financial problems. We describe several of them on our Debt Solutions page.
In any case, and no matter the reason for your financial problems, you can contact us for a free, no-obligation consultation so that a financial reorganization advisor can take the time to look at your situation. We can guide you to the best solution for your unique situation.