To Avoid Bankruptcy Alberta Debtors Must Raise Savings and Reduce Debt

Posted by: Shawn Stack on 11/24/2011

What is the most important thing you need to do to avoid bankruptcy?  Alberta residents concerned with the possibility of more global economic shocks and their own household debt to income ratio believe reducing personal debt is the key.  However, others feel increasing personal savings first is a better approach.  

First, common sense tells us to adopt either strategy – reducing personal debt or increasing personal savings – assumes we have sufficient income to allocate towards either strategy, or a combination of both.  

Some Canadians struggling to stay current with their bills assume there is little they can do, since a higher-paying job or a part-time job is beyond their reach.  In addition, some feel they have already cut expenses to the bone.  Without the ability to generate more income from a job related solution or through cutting expenses, what are they to do?

Getting professional help reviewing where your money currently goes is a good first step.  In our practice we deal with Albertans who assume their rent or mortgage is a fixed expense they cannot reduce.  In addition, few look at some of the things they own as a source of income.

The point is if you are serious about staying safe from bankruptcy, do not assume anything and do not be afraid to get professional help from licensed bankruptcy trustees like us, or from an approved non-profit credit counselor in Alberta.

We assume nothing.  If you currently live in a three bedroom apartment, will a two bedroom or even a 1 bedroom do?  What about selling your home and renting or moving to a smaller home?  If you own an expensive SUV that has never been outside an urban area, can you get by with a smaller, more economical means of transportation?

For some Albertans who may have lost jobs or been laid off, generating extra income may not be possible.  However, for the majority of Albertans who are in the earlier stages of slipping into financial difficulty, it is very possible.  What then should they do with the extra income?

The obvious answer would be to reduce personal debt at higher interest rates before investing anything into personal savings at significantly lower rates.  For many Albertans this is the strategy that makes most sense, since they feel secure in the belief the available credit of a paid off credit card will be there for them in the event of a future emergency.

In our experience, this is a dangerous assumption to make.  We deal with residents all the time who have had credit accounts closed or credit limits substantially reduced as banks tighten their standards in the face of continuing or renewed economic uncertainty.  Savings deposits are always there when you need them.  Personal savings can act as a shield against potential bankruptcy.  Alberta residents should not ignore this strategy.