New year, new debt: how to get out of it

• Budgeting is most important tool
• Cut back on spending during inflation
• Getting out of debt takes time

The New Year usually brings promises of more exercise and eating healthier. However, this can also be a time when personal finances become a stress.

People may avoid finance-related issues throughout the year until they are forced to deal with them in January.

Charlie Peet, debt relief specialist at 4 Pillars Consulting in Kelowna said mortgage debt is the biggest challenge people are facing with the dramatic increase in house values throughout the Okanagan.

“With available increase in equity, they’re refinancing their properties to pay off the unsecured debt…,” Peet told Kelowna10, referring to people who take on the bigger mortgage and lower interest rate to help pay off shorter-term debt, such as credit cards and car loans.

“If they go insolvent, meaning, seeking protection from the creditors under the Bankruptcy Act proceedings, they can’t do anything about their house debt because they have equity.”

For those who don’t own homes, debt can still be a problem, especially with inflation causing the cost of key items such as groceries and gas to go up.

“You’ve got more money chasing fewer goods, which is the baseline of driving inflation,” Peet said.

A crucial way to start getting on top of your debt woes, Peet explained, is writing all the numbers down.

“The fundamental driver of people getting in more debt is the lack of an effective budgeting process in the households.”

According to Peet, it’s important to calculate the true and full amount of how much money is made and spent. Relying on estimates regarding spending can lead to issues if the cost ends up being more than originally thought.

Where possible, he advises cutbacks on spending, like trimming travel by car.

“[This reduces] the reliance on high-interest credit facilities such as credit cards,” he said.

“Get a budget, live within it, stop your spending.”

Peet also said to be wary of acquiring too many payment plans as a way of acquiring purchases because that can get out of control.

Peet is reminding people that going into debt isn’t the end of the world, but it will take time and dedication to restructure finances.

“You didn’t get into debt overnight, you’re not going to get out of debt overnight. It’s going to take some time and some pain.”