Canada survived the recent global financial meltdown better than most western economies. Even in the face of renewed concerns, there is reason to believe as a nation we should be able to survive a potentially new round of economic catastrophes. That is small comfort for the many residents still facing substantial financial difficulty in Red Deer, and indeed, all across Canada.
The fact is Canadian consumers are confronted by the twin problems of too much personal debt and too little personal savings. Despite advice from financial experts to maintain a savings cushion of 6 to 8 months income to weather a downturn in income, not many residents of Red Deer have that much in savings.
Even those residents who do have some savings find their personal debt loads are too high for their savings to make much long-term difference should they suffer from some form of unexpected income interruption.
More and more Canadians are becoming aware of this problem and are taking steps to reduce personal debt and increase personal savings. The process begins with setting a personal budget, eliminating expenses we can live without and reducing other expenses as much as possible.
A strict budget invariably generates some additional disposable income. Then the question becomes how you should make use of it.
Conventional wisdom says to reduce personal debt with higher interest rates first. After all, what is the point of putting money into savings paying rates under 10% while you are paying 14% or more on a credit card account?
Some residents in financial difficulty in Red Deer fail to recognize the difference between cash and credit and rely on the availability of more credit after debt reduction should an emergency arise.
It certainly seems to make sense. Over time, you eliminate a $2,000 balance by concentrating every additional dime you have on reducing that account. If you get in a little more trouble, you simply take out a cash advance against the available credit.
The problem with this strategy is simple. In the face of uncertain economic conditions, more and more lenders are tightening their credit standards. If you have multiple credit card accounts with significant balances, it is not unlikely your credit limit could be reduced on some accounts. Some Red Deer residents find themselves having certain accounts closed entirely.
Depending on your situation, using a portion of your disposable income to go into personal savings might make more sense. Do not be afraid to get some professional financial help reviewing your situation. Licensed bankruptcy trustees like us offer free initial consultations, as do some non-profit credit counselors here in Red Deer.
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