48 – How to Get Rid of Debt and Level up Your Financial Life

Wayne Kay  0:04  

Welcome to another Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kaye. And in today’s show, we’re going to talk about how to get rid of debt and level up your financial life. We’re going to talk about your first steps on getting rid of debt. We’re going to talk about if you need professional advice about debt, who can provide that? 

Do you go to your banker, your accountant or your lawyer? Or where do you go to get the right information? We’re also going to talk about the best options available to individuals to get rid of that debt and get a fresh start, and also, how one person should decide between the various options for getting rid of their debt. 

My guest today, Leigh Taylor from LCTaylor, Licensed Insolvency Trustee with offices in Winnipeg and Kenora. Leigh, thanks for joining me for this very important discussion. 

Leigh Taylor 1:00 

My pleasure, Wayne.

Wayne Kay 1:05 

This is such a great topic. Once people get rid of that debt, I like the term level up your financial life. What do you think is the first step towards getting rid of that debt?

Leigh Taylor  1:15  

Well Wayne, I think the first step is recognizing what the debt is, how big is it? That sounds a little self evident, but not everybody recognizes just what the total amount of their debt is. They have a few credit cards, they don’t remember what the balance is because they’re only making minimum payments anyway. So you don’t really realize how big it is. 

And they also have to look at what caused it. If you can’t figure out what caused your debt, how you got so deep in debt, how are you going to stop it from happening again? So reducing it might take a lot of effort. But if all you’re going to do is run back into debt, again, you’re really not accomplishing anything. 

The causes of debt could be anything simply from overspending – using your credit cards, thinking you only have to make minimum payments at the end of the month. That works great for the first six months. Sometimes it’s a traumatic event, like a loss of a job, a marriage breakup, or illness, these sorts of things can set you back considerably. But if you can figure out what it is, then it’s a little bit more likely that you’re going to come up with a solution that will correct it in the long run.

Wayne Kay  2:25  

So it’s kind of like knowing where the target is. But you have to find out what the target is. Because if you don’t know that, it’s hard to even take the first steps. Do you find that there are people that don’t even open the credit card statements? They just go, they might open it, but they automatically just look at minimum payment – and that’s it?

Leigh Taylor  2:43  

Well, that’s often the case. You know, our education system is a wonderful thing, except that it has never taught anybody how to deal with these kinds of problems in budgeting, etc. They’re lucky they can balance their cheque book if they have a cheque book anymore, right? So, times have changed considerably. 

A lot of people again, maybe it’s just human nature for a lot of us, that if we have a problem, we don’t know what the solution to it is, we tend to ignore it. Inertia takes over. The letter comes from the visa company, you know what it says you don’t open it, you just throw it in the garbage and say, Well, you know, I’ll worry about that sometime in the future. It’s not until you get a phone call or your card gets trashed, or some such thing that you really have to start doing something about it. 

People can find amazing ways to put things off, if they’re not pressured into dealing with it. And that’s human nature. It just makes matters worse. We try to encourage people, of course, to figure out what the problem is early. Because if you figure it out early, now you’ve got some options that may be available to you,

Wayne Kay  3:49  

And if you figure it out early, and you’re still not making any progress, going the right way, when it comes to getting rid of those debt leaks, they know they can ask for help, and they know exactly what the situation is. 

I think that brings up the next topic. There’s people maybe listening who are saying, well, you know, I need some help with this debt. Who’s the best person that I go to? Do I go to my bank? If you have an accountant, maybe somebody who does your taxes, they do some accounting or a lawyer or the debt counseling agencies. Where do you go? What’s your best advice for that?

Leigh Taylor  4:29  

Well, you really have to understand what is the question you’re going to be asking them. I’m in financial difficulty, how do I get out of financial difficulty? And let’s take bankers, for example. If you want to get a new mortgage, you go to a bank – you’re interested in getting a reduced interest rate on your operating line or whatever. Your banker is probably going to be a big help to you. 

But if you’re going to him for solutions to your financial problems, I’m not sure your banker is the best person. It may not be in their best interest to say, Well, maybe you should make an offer to pay less or not pay your debts that month, or these sorts of things. So the banker is going to have a bit of a conflict of interest in telling you how to solve your debt problems. 

Much the same with lawyers and accountants. If you need legal advice, your lawyer may be the right person to talk to. But unless your lawyer and accountant are specializing in, or preferred areas of practice, that are dealing with debt management, collections and these sorts of things, they’re probably just going to refer you on to somebody like a Licensed Insolvency Trustee, for example. 

The problem with debt counseling, and there are some good debt counseling out there. But the problem is, there’s a whole lot that are not good. And there are too many questionable people in the unregulated field that you don’t quite know who you’re getting. And they don’t have all the tools to solve the problem. They have various schemes – you pay them and they take their fees, and they pass that along and try to negotiate. That doesn’t always work. You can end up being out of a lot of money out of pocket and still have an awful lot of debt at the end of it. If they don’t have all the tools to solve all the problems, then it can be a little bit misleading. 

And that’s sort of why we’re suggesting that a Licensed Insolvency Trustee is the way to go. Not everybody understands what a Licensed Insolvency Trustee is. But basically, Licensed Insolvency Trustees are licensed by the federal government. They’re given a license by the Superintendent of Bankruptcy to administer all at various acts and parts of the Bankruptcy and Insolvency Act. That’s not just Bankruptcy, because law further than that, it’s regulated. There are rules that they must follow. There’s a code of ethics that they must follow, they have to do the job properly. And they get audited by the federal government periodically to make sure that they’re doing everything they’re supposed to be doing. And that the law is being upheld. 

In order to get your license there’s a great degree of education that goes into it, training and experience that allows you the understanding of the various laws, and the various pieces of legislation that you can use to help people solve problems. It means that they have all the tools necessary to solve your problem, your debt problem, no matter how serious it is. And that makes a big difference. Because you can go to them, and they can talk to you and having the solutions means they can pick the right solution, that’s for you. 

There’s an old adage that says if the only tool you have is a hammer, every problem looks like a nail. And that’s a bit of a problem when you have a credit counselor that can only do negotiated settlements. That’s the only tool you’ve got and everything looks like it should be a negotiated settlement. And it just doesn’t work like that.

Wayne Kay  7:57  

So there’s a lot of people that come into the office that you get to talk to, but nobody’s the same, everybody’s in a different situation. Some people it might be, I don’t know $75,000 and they just cannot tackle that where others might be at $15,000. So are there different strategies? What do you look at to come up with the right strategy for each different person?

Leigh Taylor  8:25  

Well, I think you’re right that everybody is unique, while a lot of the problems are similar. You owe $10,000 on your credit card –  you owe $10,000 on your credit card wherever you are. But it really depends on the details. The devil is in the details was never so correct as it in insolvency situations. You have to look at the specific details in each situation. And with that comes various options depending upon what the particular problems are. 

The options may vary with the circumstances. It may be that good budgeting is the right tool to get people out of the problem. If you’re not too far in debt, and you got back to work and you’ve solved what the creation of the problem was –  then maybe good budgeting can work. 

There’s also tools like Consumer Proposals. Bankruptcy isn’t the right thing for a lot of people. And a Consumer Proposal may allow them to make a fair reasonable effort with their creditors to pay their debts back. Even if they can’t afford to pay the whole bill, the $75,000 visa bill might be more than you can afford. But if you break it down to 25 or 30 cents on the dollar over five years, that’s quite doable. And in that particular situation that might work. 

Bankruptcy is another resort. Bankruptcy is sort of been described as Oh, it should be your last resort. Well, that’s not quite true. If Bankruptcy is your best resort, that’s the one you should be heading towards. And Bankruptcy doesn’t take as long. Normally, a Consumer Proposal is cheaper, and if you can’t afford to do the proposal, then Bankruptcy makes a lot of sense. Bankruptcy is not the worst case scenario. The worst case scenario sometimes is people really desperately trying to do a Consumer Proposal. They bang their head against that wall for a year or two, only to find out that they can’t do it, and they end up going bankrupt anyway. That’s got to be the worst case scenario. 

But even other solutions, maybe changing a person’s lifestyle. Sit down with him and say, Well do you really need to spend all the money you’re spending on things? Some of them are kind of frivolous. You set your priorities, of course, but there may be a lot of them that you can do without vehicles. Vehicles are terribly expensive. And very few people realize it’s not just the capital cost of the vehicle, but the operating and the insurance. And, you know, with the price of gas these days, that’s another consideration. So maybe reducing the number of vehicles you have, if you have one, or two or more. Maybe you should have one or none. You don’t always need a vehicle, it’s convenient, yes. 

Lifestyles and houses, a lot of people bought the biggest house they thought they could afford. Interest rates are going up, the price of houses are not going up that much more, I think they’ve sort of reached their peak now. Maybe selling and downsizing your house, if your kids are starting to leave home. Downsizing the house, taking some of the equity out of the house to pay off some of the bills and living in a more comfortable sized house.

Or changing jobs, a lot of people will say, Well, I can manage the budget, if we only had an extra $500 a month. A part time job on Saturday mornings at Home Depot or something like this might be just the ticket for them. Find something that you enjoy, that doesn’t seem so hard. And you can do that. Or going back to school for a while. Community colleges offer a lot of courses, that may mean that what you can do is take a course in some sort of trade, that’s going to allow you to get out of the job – the mundane job you’re in and get into something that’s going to pay more in that you’ll enjoy more. So those are kind of examples of lifestyle changes that oftentimes, if you face a problem early enough, are going to be available to you.

Wayne Kay  12:17  

All great ideas. Is there a kind of example of what somebody in Bankruptcy would look like? Is it just that there is just not enough money to make the payments anymore?

Leigh Taylor  12:33  

You know, it really takes in just about everybody, young, old, everybody in between. There’s some people that have lots of money, but spend more and end up in financial difficulty. Their solutions might be a little bit more different than someone that lost his job and has a choice between paying his bills or going on social assistance or whatever. 

So there’s a real spectrum of particular problems, and nobody’s sort of immune to it. Lots of people even thought they may have been well off. Suddenly their business over the last couple of years, you can understand has gone under and what was a really productive business and generous source of income now has dried up. The business goes under – they are left with personal guarantees and unlimited source deductions to Revenue Canada from employees and everything. And they’re finding themselves in pretty desperate financial straits. 

I’m not going to say it’s no fault of their own, because we always have a little bit of responsibility for what we do. But certainly a lot of it is beyond people’s control at this stage. It wasn’t their fault that they got stuck in an epidemic with all of the downsides that that entailed as well. And right now, with the number of people we’ve been talking to, there’s a lot of people that are finding themselves in those circumstances.

Wayne Kay  13:54  

Wow. And I think it’s good for people to know that, as you just mentioned – you’re not alone. Because I’m sure a lot of people think, oh, my gosh, I’m such a failure. I’m the one who made this happen to myself, and how do I deal with this? 

I think it definitely comes down to having that chat with a Licensed Insolvency Trustee when it comes to options, because there’s nothing, as we were just talking about, you can really just do. An example of this kind of situation where Bankruptcy is best or a Consumer Proposal might be the best or budgeting and that kind of thing. So if somebody wants to do a free consultation, what’s involved with that?

Leigh Taylor  14:37  

Well, first of all, they have to give us a call. We can do a lot over the phone. But the best situation, particularly if you have a contract situation at all, is to sit down with us. Part of it is we’re not judgmental. We understand that people run into these problems, and they’re looking for solutions. They don’t need somebody chastising them about why you spent so foolishly – that sort of stuff doesn’t make sense. And it doesn’t apply. 

But if they sit down with us, we can go through it with them. We can answer their questions, we can address their concerns, and come up with the options that are available to them. So they can make an informed decision based on what’s in their best interest. And I think that’s the key. But they have to talk to us, they have to sort of get over that initial fear of admitting that somehow they feel it’s their fault, when it really isn’t.

 Like I said before, an awful lot of people are in this situation. We are going to see record numbers of people that are going to have to seek some sort of solution to the problems because it will not go away. Some of them, they’ll be able to work their way through it if they start early enough. But there’s an awful lot of them that are going to suffer through some hard times. But the good news is there are solutions for these sorts of things. It’s like taking medicine, sometimes the medicine isn’t necessarily going to taste really good. But it will solve the problem. And the sooner you take it the better chances of recovery.

Wayne Kay  16:08  

I think that’s a perfect place to end today. Leigh. Thank you very much for being on the show today. 

Leigh Taylor 16:15

It’s been a pleasure. when 

Wayne Kay 16:20

My guest today, Leigh Taylor. You can learn more or schedule that free consultation with LCTaylor Licensed Insolvency Trustee at the website LCTaylor.com. 

And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from and of course for more information, you can always check out debtmatters.ca Thank you very much for listening.