Being in debt doesn’t mean that you are bad at budgeting or don’t know how to manage your money. Right now, debt is affecting most Canadians. Having a plan to follow can help you pay off your debt faster so you can regain financial stability.
In this podcast, Licensed Insolvency Trustee, Amanda Sherwood talks about how to create an effective debt management plan. She covers:
- What debt management means and where to start
- Savings versus debt repayment – incorporating both into your plan
- How much debt is too much debt
- Checking out your bank for the options available for you
- Apps and computer programs to assist you
- How cancelling credit cards can affect your credit score.
Federally regulated, Licensed Insolvency Trustees are knowledgeable in all aspects of finances and debt management. You can be assured you are receiving the best unbiased advice from these,debt professionals.
Read the Transcript
Wayne Kay 00:04
Debt management. It’s something we really need to learn to be better at. That’s our topic today on the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.
I’m Wayne Kay. Coming up on the show today, we’re going to talk about debt management. We’re going to provide some guidance on managing and reducing your debt, including credit cards, loans and your mortgages.
When do you need to start looking at managing your debt? How does budgeting work? Or spending plans? How do those work? What are some of the issues that people run into when they’re trying to manage their debt? And we’re going to talk about solutions as well.
My guest today, Amanda Sherwood from Allan Marshall & Associates Licensed Insolvency Trustee in New Brunswick. Thanks for being on the show, Amanda.
Amanda Sherwood 00:51
Thanks, Wayne. Thanks for having me.
Wayne Kay 00:52
Oh, a pleasure. And thank you for your time because this is a big topic. Debt management, debt has become that big that we actually have to manage it. It actually takes work these days, doesn’t it?
Amanda Sherwood 01:07
Absolutely. It is something that has become a hot topic for me because it is so important for me to have individuals understand what debt management means and why it’s so important to keep that on the top burner.
Wayne Kay 01:24
Okay, so what does it mean?
Amanda Sherwood 01:27
People need to understand what they spend their money on. I have conversations every day with individuals going through what income they earn and where they spend their money.
And for the most part, people know the basics, but when they actually get down to where every one of those pennies are going, they’re missing some big categories – things that they just purchase every day for mostly food and coffees and things of that nature. But also just unexpected things that pop up that they don’t even have a budget category for.
So it’s important to really kind of sit down. And I’m an advocate for writing down your budget. Whether it’s through some type of app or typed on a computer or a paper budget book, it’s important to know where everything is going, but then also to backtrack and see where your money went, to see what categories you’re missing.
Wayne Kay 02:28
And this is a great time of year to do this. You know what you’ve got in the bank, you know what you don’t have in the bank, you know what’s owed. And this is the time where you can say, okay, it’s time for me to really focus on where this money is going.
So a pen and paper, great way to do it these days. I think it’s almost easy because everything we do is either on our credit card or our bank debit card.
Amanda Sherwood 02:52
Right. Grabbing your statements every month and reviewing those is a great way to just pull all that information out.
Wayne Kay 02:59
There’s a lot of people who never look at their statements.
Amanda Sherwood 03:02
Agreed. And they’re shocked when we actually have this conversation and I ask them, can I get this and review it with you? And then we have that conversation and they’re just in awe once we get through all the numbers.
Wayne Kay 03:12
And if you’re in that situation, anyone listening and they never look at it, you’re not alone. It is amazing how many people never do. I’ll text my wife, I’ll buy something and she’ll say, oh, how was A&W today? She knows where it’s gone instantly. She does a great job of keeping tabs on it.
Amanda Sherwood 03:36
Good. That’s important.
Wayne Kay 03:37
But there’s a lot of people, and I bring this up because I know friends who’ve had things going on their credit card month after month after month. And they were like, why is this $100 charge for the last nine months been there and they didn’t even know they were making some payments.
Amanda Sherwood 03:55
Right. A lot of auto payments or a lot of people have an overdraft on their bank account or the bank account is linked to their card so that if they’ve overspent. Then it goes on to that and they’re not even seeing that expense because it’s through that other card. So they’re missing some things.
Subscription costs that are just automatic, that you don’t have to manually pay for or, even if you do go into overdraft, the overdraft fee and it’s always on the end of the last month statement. So you’re not seeing it once that transaction processes, to begin the new transaction.
Wayne Kay 04:29
And there’s all kinds of – where you just try something for free, hey, try it for 30 days and then you don’t officially cancel it and you end up making these payments. So when you talk about budgeting, how does budgeting work regarding debt management? Can you walk me through what it’s going to look like?
Amanda Sherwood 04:47
Yes. And that’s so important these days, especially with the increase in interest rate and increase in living expenses to just hone in on what exactly you have to pay for.
Giving yourself (A) a category for first to save and (B) for debt repayment outside of your everyday expenses. I find a lot of individuals are in a cycle of making your minimum payments on your credit card. You pay all your expenses, you haven’t put anything in savings and you’re out of money before the end of the month. So you go back to use that credit, which in some cases can increase the balance.
Even though you’ve made a payment, you haven’t deducted any credit, and then you’re paying interest on top of that. And those minimum payments are mostly interest, you’re paying very minimal on the principal.
So if you can give yourself a strict budget with what’s going out, and then you have a strict budget on what you have for debt repayment, split that up accordingly so that you’re not overspending on your expenses either and needing to resurface on using that credit every month.
Wayne Kay 05:55
How do you pick which ones are the most important to be tackling?
Amanda Sherwood 05:59
Well, it can go a couple of different ways, but my personal opinion is to basically figure out, you write your list of debts out and you write the minimum payments that are due.
Then once you figure out the amount that’s in your budget that you’ve allocated to debt repayment, balance that out with all the minimums. Whatever’s left is that chunk of money that you’re going to start focusing on your highest interest debt every month. You’re going to put that excess money on that highest interest debt until that’s paid, and then you’ll move that excess.
Wayne Kay 06:30
Onto the next one and then you get more. You get to put more in there.
Amanda Sherwood 06:35
Exactly, because now you’ve eliminated that one.
Wayne Kay 06:37
So then all of a sudden, over a couple of years, some people you’ve worked with, once you really show them how to do this, you’ve seen people that have really tackled their debt quickly, right?
Amanda Sherwood 06:53
Absolutely. But to a degree of, as long as the debt is manageable, as long as it’s at a level that it will get paid within a reasonable time and you have enough money to pay more than the minimum payment, so you’re actually reducing it. Yes, we’ve had great success with that.
Wayne Kay 07:11
Now, what kind of problems do people run into when they’re trying to manage their own debt?
Amanda Sherwood 07:16
So once we get everything down on paper to figure out what you’re bringing in and what you have to pay for and what’s allocated to debt repayment, the issues start up with not having enough to go on debt repayment. You have yourself overextended. So you can start off with a couple of categories.
Are there areas that you can cut back on or not? Is it a matter of needing to figure out a possible alternate route, either consolidating or speaking to your bank to see if there’s any options on eliminating some of the debt in terms of transferring to a line of credit or accessing equity in terms of assets that you might own.
And if that’s not going to be the case, because again, that debt is just too far extended, then we might look at a Consumer Proposal or a Bankruptcy to do some type of formal proceeding to eliminate the debt because it’s not manageable.
Wayne Kay 08:11
At one point I had some debt, so it was something I couldn’t tackle. It was going to take me a couple of years to deal with.
And I don’t know if this, I’m going to admit it to you, and I don’t know if this was the right thing to do or not. But before I went to put it all on a line of credit, I would get these cheques in the mail from a different bank. It would say, transfer your card information over for 0% for six months, and then I would use that for the six months. And then by then another bank would give me a letter to transfer over to me for 0%. And I just kept doing that for a little bit and I found that it worked well. Do they still do that?
Amanda Sherwood 08:52
It’s definitely an option. They do. They definitely offer certain rates where you can do either minimal interest or no interest for a certain amount of months.
You have to have a good credit rating to be eligible for that. It’s not usually available to everyone, but it’s certainly an avenue to check into. That’s a good idea because you don’t have those interest payments and the payments that you’re making, you’re getting that principal down. So to be offered that a couple of times, that worked well.
Wayne Kay 09:23
I don’t know if we had any credit rating that was way back when. But I just remember that for us they were kind of like little lifesavers that would come every once in a while where you get these little bank offers and then finally went and talked to the bank and said, okay. And I didn’t even know about the line of credits. This was years ago. So talking to people obviously makes a big difference.
Amanda Sherwood 09:45
Absolutely. And that’s a good point to make, because even though you bank with one bank, it is a service industry, so you may be able to have conversations with other banks to say, this is my situation. What do you recommend? What kind of products do you have that might help me get things under control?
Wayne Kay 10:04
Okay.that worked. And I like the way you’re going here with writing it all out and then once again asking, going to the bank, finding out if that’s an option. Because once again, people think about this show and about debt matters, and they’re starting to think, well, we got to go to the heavy ones, we got to go with the Consumer Proposal or we’ve got to go with the Bankruptcy. But that’s not always the case when they come and see you.
Amanda Sherwood 10:31
Exactly. It’s more a tailored situation for each individual because it completely depends on what is your total debt load, what is your income level, what do you own. So each situation is going to have different advice.
Wayne Kay 10:44
You talked about some of the issues people run into when they’re trying to manage this debt. What’s some of the advice that you have for dealing with those issues?
Amanda Sherwood 10:55
My main advice is to just understand what you have to work with and know when you can’t manage it on your own. I am forever grateful when I do get to connect with an individual that I can tell is losing sleep at night, has been stressed out for months or maybe years, is not able to continue with the way they’re living, have multiple credit products, trying to keep things afloat, robbing Peter to pay Paul, and it’s just not working out.
Then we get to have that conversation of let’s go over and discuss your options. And it could be certain things like – maybe the budget was working fine and everything’s being maintained, but you’ve had an unforeseen circumstance pop up.
You lost your job or hours were reduced or you were out sick and missed work or things that have been under your control that it’s not a matter of, you can make some changes to fix this. It’s now things that are out of your hand, so you don’t have the control anymore that you once had.
So when you run into those issues, you really want to talk to somebody that’s licensed and qualified to go over and let you know what options are available to me, what are the pros and cons of those options? And then you get to take away that information to see how you want to move forward with this to gain some relief.
Wayne Kay 12:15
And it’s very important, once again, that people reach out to a Licensed Insolvency Trustee. So if you’re listening to the show and you’re living in BC, reach out to one of the Licensed Insolvency Trustees. In BC, there’s different laws for each province.
Amanda Sherwood 12:35
Yes, for the most part, there’s provincial exemptions and provincial laws. But a Licensed Insolvency Trustee is federally regulated. But there are provincial laws that encompass that.
So you do want to speak to a Licensed Insolvency Trustee in your area. And we are governed by the Superintendent of Bankruptcy. And if you Google Superintendent of Bankruptcy and you’ll find their website and they have a directory so you can search by address or location that’s closest to you.
Wayne Kay 13:07
Right. And they could also just look it up. Wecanhelp.ca – reach out to Alan Marshall and Associates and they will point you to maybe one of their other offices in another province.
So when we’re talking about debt management reaching out to Licensed Insolvency Trustee, that obviously makes a big difference in guiding people. But we do want people to know that there is help available through this.
And my son, I got to tell you, he’s doing a fantastic job because luckily I learned through my hardships and was able to pass on some information. He’s been wonderful, but he has spreadsheets for everything. He’s the spreadsheet king on this is what I’m saving for. This is for the house. And technology really can make a difference. It makes it easier.
Amanda Sherwood 14:00
That’s wonderful. And it’s so true. You can really get creative with the different apps and computer programs to build it out and make a lot of it automatic.
Wayne Kay 14:09
And it doesn’t have to be complicated, but you have to be dedicated to writing that down. As you mentioned, you have to go through all of your statements to find out where the money is going.
Amanda Sherwood 14:23
Absolutely. And I’ll tell you, in my younger years, before I started in this field, I was an individual that really didn’t pay attention to budgeting as much as I should have in the beginning. And I was one of those people that were apt to apply for those credit cards at the grocery store if you could get a percent off your order, or at a clothing store if you could get a percent off your order.
And going through university definitely utilized that credit to help get through that. And when I got into this field, I was very quick to realize I needed to make an adjustment very fast. And budgeting became my powerhouse to figure out what needs to go where to get things back on track before it got out of hand.
Wayne Kay 15:08
Is there any truth to the fact that, let’s say there’s somebody who’s done exactly what you have and they’ve got six credit cards and I don’t need six credit cards, I might need two. One as a backup, possibly. Is there any truth to, if you cut those cards up, that it’s bad for your credit?
Amanda Sherwood 15:25
It is bad for your credit to cancel an account. The whole idea with your credit reporting is that you can keep an account open for a long period of time and manage it. So when you close it, it’s reported that you can’t manage it.
Wayne Kay 15:38
Oh, really?
Amanda Sherwood 15:39
So it’s not a huge impact, but it encompasses your credit rating along with a lot of interesting things that you wouldn’t think about if you changed employment multiple times. If you move multiple times, a lot of it factors into how they calculate that.
So if you do have six cards, and obviously, no, you don’t need six cards. Put them in a drawer or put them in the freezer or whatever you need to do, and just focus on using the ones you want to use, but just keep them open.
Wayne Kay 16:12
Okay, terrific. That’s good to know. Any final advice you have for us?
Amanda Sherwood 16:17
I just want people to know that even though you might be fearful to get the information, reach out and just have that chat. Because right now everyone’s struggling with multiple different things, and I would rather provide that education to possibly eliminate some of the fear and the stress that’s happening right now with finances and to get people into programs that are going to help and reset things.
Wayne Kay 16:46
Terrific. I sure appreciate your time, and thank you so much for being on the show.
Amanda Sherwood 16:50
Thanks, Wayne.
Wayne Kay 16:51
Well, my guest today is Amanda Sherwood. You can learn more or schedule a free consultation with Allan Marshall & Associates Licensed Insolvency Trustee through the website wecanhelp.ca.
And that’s it for today’s Debt Matters podcast. Now, make sure you subscribe wherever you get your favorite podcast from, or if you know somebody who’s in a tough financial situation, by all means, please share this podcast with them. And of course, if you want more information, you can always check out debtmatters.ca. Thanks for listening.
About Amanda Sherwood
Amanda started with Allan Marshall and Associates in 2008 as an Estate Administrator. She has since received her Chartered Insolvency & Restructuring Professional (CIRP) and her Licensed Insolvency Trustee (LIT) designation in 2022.
The most rewarding part of her job, Amanda says, is hearing her clients say how relieved they are after meeting with their office. She reminds everyone that they are not alone and that help is available to get relief from insurmountable debt.