September 5, 2017

Would you be surprised if I said “too much debt”?

It goes without saying that having too much debt is the main reason that anyone would consider filing for bankruptcy but when is too much debt really too much?

If you are reading this post you most likely have debts – very few people are truly debt free.  You may owe on a mortgage, a car loan, a line of credit a credit card, an overdraft and so forth – perhaps even all of the preceding.

If you negotiated your mortgage over a 25 year (amortization term) then you should be able to afford to pay it down over 25 years or less without renegotiating other debts into the mortgage or without renewing over an extended term.  If not then you should think about downsizing.

The same holds true for a car loan if you are rolling one loan into another maybe it’s time to think about buying a bicycle and taking the bus.

With unsecured debts, overdrafts, credit cards and line of credit if you can’t pay them off in a month or two you should stop using them until they are paid off.  The idea of using debt is to bridge a gap – to get you back in balance not to provide some form of social assistance.

Oh sure there are all kinds of other triggers that lead to bankruptcy, most notably income changes such as those arising from the loss of a job, marital breakdown, death in the family or illness.  But in almost all of those cases the debtor was already not managing their debts very well before that event occurred.

How long would it take you to downsize your debt without resorting to an insolvency proceeding?