How much of your income is actually considered disposable and how can you avoid it from disappearing to your debt payments?
According to a recent report by Statistics Canada, approximately 15 per cent of the average Canadians’ disposable income is used to repay balances owed on various loans. Here’s why finding strategies to reduce household debt and maximize disposable income is important.
WHAT IS DISPOSABLE INCOME?
The money left over after provincial and federal income taxes is considered your disposable income. This amount needs to be spread out and used to cover various expenses. Experts generally recommend that no more than 50 per cent of your disposable income goes towards necessities, and that a maximum of 20 per cent is allocated to financial goals like paying down debt, saving and investing. Whatever’s left over can be used however you see fit.
WHY IS IT IMPORTANT?
Reaching a point where you have a reasonable amount of disposable income is crucial to the long-term financial stability of your household. This is because it allows you to establish savings as well as an emergency fund.
If Canadians are currently using close to 15 per cent of their disposable income to make payments on their debts, then it means they have less money to allocate to their other financial goals. This seriously limits their ability to save money.
HOW CAN I REDUCE MY DEBT?
With debt repayments outpacing the growth of disposable income, many Canadians are trying to find ways to lessen their debt burden. An important first step in any debt management strategy is to seek the help of a licensed insolvency trustee to get a clear picture of your financial situation. This will make it possible for you to know what your options are. Debt consolidation, which consists of taking out a large loan to repay several smaller debts, can be a good option, as it generally reduces the amount of interest you’ll pay. In some cases, adopting better financial habits and cutting down on spending is enough to speed up how quickly you can pay off your debts. Each case is different, however, and requires a specific strategy.
READ OUR BLOG ABOUT WHY TEAMING UP WITH A LIT IS THE BEST WAY TO TACKLE YOUR DEBT MANAGEMENT STRATEGY!
HOW CAN I AVOID INCURRING MORE DEBT?
The best way to limit debt is to keep a strict budget and stick to it. Limiting spending is an effective way to avoid accumulating debt. Devoting more than 20 per cent of your disposable income to your financial goals may leave you with less funds for nights out, but it’ll help you clear debts faster and save more money in the long run.
DON’T HESITATE—LET US HELP YOU FIND A NEW BEGINNING™
The most important thing to do when dealing with debt is to have a clear and realistic understanding of your situation and your options. For debt help and credit counselling, trust the licensed insolvency trustees at D. & A. Macleod Company Ltd. Contact us today for a free consultation and let us help you find a new beginning ™!