How to Understand Your Entire Debt PictureJan 31, 2018
Several major banks raised their mortgage interest rates in January, which can have a big impact on Canadians who have mortgages with a variable rate or those looking to renew a fixed rate. A hike in interest rates — whether a mortgage rate or the prime rate from the Bank of Canada — can quickly turn a manageable debt load into a debt problem.
Here are a few things you should look at when it comes to understanding your debt picture and whether it’s time to seek help with debt:
- The overall amount you owe
This is the easiest part of understanding your debt load. Adding up the total amount of each debt provides a high-level view of your debt situation. The total amount of debt you carry is important to know, but doesn’t show you the whole picture. Try making a list of all your debts and leave a few columns where you can add additional information.
- Your interest rates and interest payments
The total amount you owe would be sufficient if you were dealing with zero per cent interest rates, but that’s not the case. Understanding how interest impacts your debt relief efforts is vital information to help you develop an effective plan.
Write the interest rate beside the amount owing for each debt. Take an old statement for each debt and analyze it to see how much of your minimum monthly payment goes towards interest only and make a note of it.
- The overall length of time it will take to pay off your debt
Using online debt calculators, figure out how long each debt will take to pay off. Don’t forget that this would be in a perfect world where don’t add any new debt. The amount of time might surprise you, especially when dealing with revolving high-interest credit card debt. Make sure to write the length of time beside each debt in your list.
The good news is if you listened to our first podcast of 2018, you’ve changed your mindset about debt and are focused to get help with debt and build a plan to reduce it. The information you’ve learned in the three steps above will help you determine whether you can build a debt relief plan on your own or whether you might need the help of a Licensed Insolvency Trustee.