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Published On: Wed, Nov 21st, 2018

Warning Signs That You Have Too Much Debt

There is no magic number that tells you when you’re in too much debt. It depends on your income, your assets, your daily living expenses, as well as your future financial goals. You may be able to comfortably make debt payments, but at the expense of saving for a mortgage, while others struggle to make even minimum payments and face high interest charges or late penalties.

photo TaxRebate.org.uk

Your unique circumstances affect your options for getting out of debt, too. You may be able to get out of debt without going through the insolvency process, or insolvency may be the smartest, or only way to become debt-free.

However, there is a proportion of debt that, according to the banks, is too much. Banks and other lenders measure this using a Total Debt Servicing Ratio (TDSR), i.e., how much of your income you make in monthly debt repayments. The cut-off point at which lenders will no longer lend you money is 40%.

Another tool lenders use is your Gross Debt Servicing Ratio. GDSR is the ratio of your housing costs (a mortgage) to income and will not give a mortgage that will require you to pay over 32% of your income. For many, if 40% of your monthly income after taxes is going to credit card payments, mortgage payments, car loan payments, bills, property taxes, and other debt repayments, you may quickly find yourself in trouble.

What counts as too much debt for you may be very different. Pay attention to your budget and find out how much you can afford. Banks and other lenders can be eager to extend you lines of credit and other forms of debt when they see that you have more room in your TDSR, and it often doesn’t make sense to take advantage of it unless you have a specific goal in mind. Keeping your debt repayments to 28% of your monthly income or lower can give you more breathing room in your budget to save for emergency expenses.

Sometimes, too much debt doesn’t have to do with the numbers, but how you feel about your finances. Do you feel like you’re struggling just to keep afloat? Do you lose sleep about high debt or what would happen if you lost your job? Do you worry every time you get a new bill?

If you’re anxious about your debt or you feel like you’re not getting anywhere no matter how much you set aside to pay down credit card bills, it may be time to contact a bankruptcy trustee, now known as a Licensed Insolvency Trustee, and talk about your options.

Bankruptcy and consumer proposals are two ways you can get out of debt if you are insolvent. However, they are not the only ways to get out of debt. A debt management plan or credit counselling from a bankruptcy trustee like David Sklar & Associates can help you make more headway on debt repayments. Once you’ve paid down your debt, you can start saving and building a financial future. You just need a chance to catch up before you can get ahead. Get in touch with a bankruptcy trustee to talk about debt solutions.

Author: Tommy Wyher

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