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Manage your debt like a pro

Fresh numbers have been tallied on the rise of household debt in Canada, and it isn't a pretty sight. According to a new report from The Vanier Institute of the Family, debt loads are in the danger zone.

"Average household debt soared to over $90,000 in 2008 and the ratio of consumer debt plus mortgage debt climbed to 127 percent of disposable income…only three percentage points below the US rate," writes Roger Sauvé in his report, The Current State of Canadian Family Finances.

Those numbers are a stark reality check, especially as bankruptcy and unemployment numbers start to rise. That's the bad news. The good news is that as debt levels rise and credit cards seem more seductive, there's always choice involved. Through control and discipline, you can avoid high-interest consumer debt entirely or, at the very least, learn to manage it responsibly.

Keep it simple
"If you're going to stay out of debt, or get out of debt, simplification is key," says Laurie Campbell, executive director of Credit Canada in Toronto. "One of the big problems when people get themselves into debt is they've complicated their financial lives."

Keeping your financial life simple is a two-pronged process. The first step is to create a spending plan that is tied to specific goals.

"People who tend to get themselves into debt and let things get carried away often tend to have very few goals," says Campbell. A goal is a good motivator and provides an easy way to see if you're on track.

So, each month, you need to look at your goals to see if you're making progress. If you're stagnating or falling behind, go back to your spending plan. Does it make sense? Can you tweak it?

Since the word budget is apparently a four-letter word, says Campbell, her non-profit organization has come up with an alternative to pen-and-paper spending plans. If you're a fan of online tools, check out the recently launched Piggy Pal web site to track your daily spending online or via your mobile phone.

If you need a motivational boost, don't overlook the power of financial books that fit your lifestyle, says Campbell. She just finished reading, Findependence Day: One Couple's Turbulent Journey to Financial Independence by Journalist Jonathan Chevreau. The book includes the challenges of losing a job, getting married, parenting and all the financial setbacks in between. "From a financial point of view, everything's right on," says Campbell.

She also recommends two classics: "The Wealthy Barber," by David Chilton, and "The Millionaire Next Door," by Thomas Stanley and William Danko.

The other key to managing your finances and staying out of debt is to "keep your credit cards down to one," says Campbell. "One of the biggest problems that we see here is credit card use." In fact, the average number of credit cards toted by people using the services at Credit Canada is eight

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-- Posted: March 03, 2009
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