Credit & Debt Management

 Monthly Income

 Monthly Expenses

 No Debt Paid

1. There is a Negative amount of income remaining after  Monthly Living Expenses are covered
2. No Debts are paid

Living Beyond Means Stage:

• Expenses exceed Income
• Can't get back on track until expenses are in line with Income
• Need to increase income or reduce expenses to break even
• Spiraling out of control
• Bankruptcy doesn't even help at this stage

 Monthly Income

 Monthly Expenses

 No Debt Paid

1. Income equals Monthly Living Expenses
2. No Debts are paid

Living Barely Within Means Stage:

• Expenses equal Income
• Need to increase income or reduce expenses to be able to repay debt
• May increase income by selling assets, taking on additional jobs, getting a roommate to share expenses
• May reduce expenses by changing living arrangements or accommodations,  reducing utilities by eliminating or monitoring their use, sharing childcare with another family to reduce cost 
• Bankruptcy or Consumer Proposal may be an option to resolve debts

 Monthly Income

Monthly Expenses

 Minimum Payments made on Debts

1.  Income exceeds monthly living expenses enough to make minimal payments on debts
2. Minimum Balances paid on debts

Living Generally Within Means Stage:

• Income exceeds Expenses
• Need to increase income or reduce expenses to make more than the minimum payments on debts
• Minimum payments eaten up by interest rates being charged
• Balances do not reduce when making minimum payments
• Try to work with creditors, negotiate for lower interest rates
• Use lump sum amounts such as Vacation Pay, Income Tax Refunds to reduce debt amounts
• Use lump sum amounts to try to negotiate settlement offers
• Bankruptcy, Consumer Proposal may be options
• Negotiated Debt Repayment plans may be an option
• Refinance, home equity loans, debt consolidation loans, second mortgages may all be options at this stage
• May be able to borrow from family and friends

 Monthly Income

 Monthly Expenses

 Debts paid in full

1. Income Exceeds Expenses and Debt Payments
2. Debts paid in full every month

Living Successfully Within MeansStage:

• Income exceeds expenses and debt commitments
• Funds available for savings, education and retirement planning
• Contribute monthly to savings plan
• RRSP'S maximized yearly
• Insurance coverage appropriate
• Emergency savings 3 to 6 months
• Pay yourself first
• Renovations, Maintenance and Repairs