Agency: Credit Counselling Service of Sault Ste. Marie & District

Topic: Diagnosing Debt Problems

Phone: 705-254-1424

Date: 5/3/99

Diagnosing A Debt Problem


The shape of your financial fitness has a lot to do with your debt level. And while living without debt is the dream of many Canadians, it is not the reality.

Some debt is fine, and in fact the wise use of credit is an integral part of most peopleís financial planning. Determining when you are overdosing on debt is the key to maintaining financial balance in your life.

To decide if your debt level is nearing the danger zone, calculate how much debt you have relative to your annual income. Once your debts, excluding mortgage payments, begin to nudge up past 15% of that income, you could be headed for trouble. Sometimes even 15% is too high. If you find yourself worried about your debts, they are probably too high. The characteristic signs of credit trouble include using one credit card to pay another, not being able to make all your minimum payments each month, using credit cards for necessities, such as groceries and spending more than you have coming in each month.

The simplest solution for too much debt, of course, is to pay if off. While thatís easier said than done, there are ways to tackle the problem.

Donít incur any more debt until youíve reduced or, preferably, eliminated your current debts.

Use your current savings to lower your debt load.

Start by repaying the debts that carry the highest interest rates Ė usually credit card and car loans.

Liquidate assets you donít need and use the proceeds to pay off debt. (However, consider carefully before using RRSPs to pay off debts. You are borrowing from the future and could incur tax liabilities).

Consolidating your loans into one overall loan with a lower rate is an option if your credit rating and cash flow are good.

Switch the balance on your credit cards to low-interest credit cards Ė but be sure to pay off and close the first cards.

If interest rates have dropped since you took out your car loan, go to your bank and ask for it to be refinanced.

Seek the help of a not-for-profit credit counselling agency who can help you with budgeting and even debt repayment if necessary.



"Helping you manage your debt" is a series of articles provided by member agencies of the Ontario Association of Credit Counselling Services. All agencies provide a range of no or low cost services to help people solve their financial problems and improve their consumer and money management skills. For more information about credit counselling services in Sault Ste. Marie, please contact Credit Counselling Services of Sault Ste. Marie & District, 298 Queen Street East, Suite 2, Sault Ste. Marie, ON, P6A 1Y7 or visit our website at