How long does a bankruptcy last?

The length of the bankruptcy depends on a few factors – whether you have ‘surplus income’ (see below) and whether you have been bankrupt before. If you have no surplus income and have never been bankrupt before, you will be eligible for an automatic discharge after nine months.

How long does the Consumer Proposal last?

A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.

What is a bankruptcy?

A bankruptcy is a legal process to discharge your debts. It is a declaration that your debts are too high for you to repay – and far better than the old concept of a ‘debtor’s prison’! It allows for a fresh start, while giving your creditors some return on what’s owed only if you have a level of income that allows for payments to be made to them, or unprotected assets that can be liquidated (however, most common assets are protected during this process – see below for more information on protected personal assets).

What is a Consumer Proposal?

A Consumer Proposal is an offer to your creditors to pay back a percentage of what you owe them, based on your ability to pay. It is governed by the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. Unlike other negotiated debt settlement plans, it is legally binding on all creditors and usually involves paying back less than the total amount of your debt.

What is a Licensed Insolvency Trustee (LIT)?

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.

Tips to Budget While Paying off Debt | Campbell Saunders Insolvency Trustee

At Campbell Saunders, we understand that managing debt can be overwhelming, but we believe that achieving financial freedom is within your reach. Budgeting is a critical tool in this journey, especially for those dealing with debt. In this blog post, we’ll provide practical, real-world tips to help you budget effectively while paying off debt, setting you on a path towards financial stability and peace of mind.

The Importance of Budgeting When in Debt

Budgeting is essential for effective debt management. It provides a clear roadmap of your financial situation, helping you avoid accumulating new debt, prioritize your expenses, and track your progress towards debt repayment. With a well-structured budget, you can make informed decisions, ensure that you meet your financial obligations, and steadily work towards reducing your debt.

Learn more about why you need to budget.

Step-by-Step Guide to Effective Budgeting

Assess Your Financial Situation

To start gaining control over your finances, begin by listing all your sources of income and every expense you incur. This comprehensive overview will provide a clear picture of your financial inflows and outflows. Next, categorize your expenses into essential items such as rent and groceries, and non-essential items like dining out and entertainment. Don’t forget to factor in debt repayments! Take the time to understand your debts by noting the types, amounts, and interest rates. Having this clarity will guide you in developing an effective repayment strategy.

Prioritize Debts

To determine which debts to pay off first, you might like to focus on high-interest debts, as this can save you significant amounts on interest over time. This method is called the debt avalanche method. Alternatively, the debt snowball method, which involves paying off the smallest debts first to build momentum, can create a sense of achievement. For example, you might want to address the credit card with a 22.99% interest rate before tackling the line of credit with a 9.9% interest rate, or you might choose to pay off that old phone bill of $600 before moving on to larger debts to enjoy the satisfaction of crossing one off your list early on.

Create a Realistic Budget

Develop a budget that fits your lifestyle by using interactive budgeting spreadsheets or apps. Explore different budgeting strategies to find one that works best for you, such as zero-based budgeting, where every dollar is allocated to a specific purpose, or the 50/30/20 rule, which allocates 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. For example, if you earn $3,000 a month, under the 50/30/20 rule, you would allocate $1,500 to needs, $900 to wants, and $600 to savings and debt repayment, helping you manage your finances effectively.

If you find that no matter how carefully you budget, your income is not sufficient to cover both your essential expenses as well as your debt payments (let alone having some room for fun!), there are two options to consider. Can you increase your income? If not, it’s time to seek professional advice on dealing with your debt.

Accelerate Debt Repayment

Increase Payment Frequency and Amount

If you have the budget room, make extra or higher-than-required payments on your debt, even if this requires short-term sacrifice of some non-essential expenses. Be sure to check with your lenders about the best ways to make extra payments without incurring penalties, though this is usually an issue that is connected to secured loans like a mortgage or car loan, or occasionally for a fixed repayment loan. When starting a loan it’s always best to read what you’re signing and to clarify if there are any penalties for repaying the loan earlier than the schedule. Accelerated payments can reduce your overall interest costs, freeing up more money for future financial goals and providing greater financial flexibility.

Consolidate or Refinance Debts

Considering debt consolidation loans can offer both advantages and disadvantages. On the positive side, they can simplify your financial life by combining multiple payments into one manageable monthly payment. To consolidate debts effectively, start by exploring refinancing options and balance transfer credit cards that may offer lower interest rates. However, it’s crucial to be aware of potential pitfalls, such as fees and the risk of accruing more debt if you don’t address the underlying spending issues. Key considerations include understanding the terms and conditions of the consolidation loan and ensuring it truly benefits your financial situation in the long run.

Finding Extra Money

Utilize Windfalls and Bonuses

Using unexpected funds like tax refunds, bonuses, or gifts towards debt repayment can be a smart financial strategy. These lump-sum payments can significantly accelerate debt reduction by decreasing the principal balance faster, which in turn reduces the amount of interest you pay over time. By directing these extra funds towards your debt, you can achieve financial freedom more quickly and free up money for other financial goals.

Cut or Reduce Expenses Temporarily

Identifying areas where you can cut back, such as memberships, subscriptions, and utility bills, is a key step towards managing your finances better. Practical tips for reducing household expenses by at least 10% include canceling unused subscriptions, checking thrift stores and local Buy Nothing groups before buying new, adopting energy-saving habits to lower utility bills, taking some time to shop around for the best deals, and using apps like FlashFood and Too Good To Go to get deals on food and groceries. Living frugally, even temporarily, can help you save money without significantly impacting your lifestyle, ultimately allowing you to allocate more funds towards debt repayment or savings.

Building an Emergency Fund

Having savings to cover unexpected expenses is crucial for maintaining financial stability and avoiding falling back into debt. It’s important to strike a balance between saving for emergencies and paying off debt to ensure both short-term security and long-term financial freedom.

Learn more about the history and your relationship with money.

Start by setting achievable savings goals, such as aiming to save a small amount each month, and consider automating transfers to make saving easier. We suggest opening the savings account at a different bank, and setting it up so that a few steps are required to access the funds – this will decrease the temptation to dip into it in non-emergencies.

As your budget allows, prioritize building an emergency fund equivalent to at least three to six months’ worth of living expenses. This fund acts as a financial safety net, providing peace of mind and shielding you from the need to rely on credit in times of crisis. By consistently contributing to your emergency fund, even with a tight budget, you can gradually strengthen your financial resilience and take control of your financial future.

Behavioural Changes and Long-Term Strategies

Avoid Temptation Spending

To safeguard your financial health, it’s essential to adopt strategies that protect your credit cards and promote mindful spending. Start by removing stored credit card information from online shopping apps to prevent impulsive purchases. This simple step introduces a deliberate pause before buying, allowing you to reconsider whether the purchase aligns with your budget and financial goals. Some people even freeze their credit cards in a container of water, forcing them to slow down and consider their purchase while the ice melts.

Cultivating mindful spending habits, such as creating shopping lists and tracking expenses, further reinforces responsible financial behavior. By staying vigilant and mindful, you can reduce the risk of unnecessary debt accumulation and maintain better control over your finances.

Align Spending with Financial Goals

Understanding the psychological aspects of spending is crucial for staying motivated towards achieving financial goals. Recognize the triggers that lead to impulse buying and develop strategies to combat them, such as implementing a cooling-off period before making non-essential purchases, going shopping wth only the amount of cash you’ve decided to spend, blocking certain online shopping sites from your phone, or locking your credit card for an extra step before being able to spend.

Setting clear, achievable goals and regularly tracking progress can also help maintain motivation.

Create support networks like family and friends to bolster financial discipline. Share your goals with them for accountability and seek their encouragement and advice when facing challenges. By fostering a supportive environment, you not only strengthen your commitment to financial success but also gain valuable insights and motivation along the journey.

Seek Professional Help

Knowing when to seek professional guidance from a financial advisor or credit counsellor can be pivotal in navigating challenging financial situations. Whether you’re struggling with debt management, planning for major life changes, or seeking to optimize your financial strategy, these professionals offer personalized guidance tailored to your specific needs and goals.

Licensed Insolvency Trustees, like Campbell Saunders, provide specialized services including debt counselling, financial education, and tailored debt repayment plans that align with your financial circumstances. Their expertise can help you develop a structured approach to manage and eventually overcome debt, offering peace of mind and a clear path forward.

Professional advice not only provides practical solutions but also empowers you with knowledge and strategies to regain financial stability and achieve your long-term financial objectives.

Budgeting is a powerful tool in the journey towards financial freedom. By following these practical tips and strategies, you can effectively manage your debt and work towards a more secure financial future. Remember, the first step is often the hardest, but with determination and the right support, you can achieve your financial goals. For further assistance and personalized advice, don’t hesitate to contact Campbell Saunders. We’re here to help you every step of the way.