Debt ratio calculation

Are you in control of your debts? To find out if your debts are under control, you can complete the test at testezvosfinances.com.

For Pierre Fortin, licensed insolvency trustee, ‘’Recognizing that there is a problem is a crucial step which, unfortunately, often comes too late. When we pay the required amounts on our debts, it can give us the impression that everything is under control; but if we simultaneously need our credit cards to cover our everyday expenses, that is a big, red flag. When we need our credit cards (or credit line) to make ends meet, that is a clear sign that we are in a debt spiral which can be very hard to get out of.”

How to recognize a debt problem? 

As insolvency professionals, we have noticed that over-indebtedness can creep in subtly and very gradually. The best way to avoid it and regain control of your finances is to recognize the early warning signs of debt and act without delay. There’s no need to wait until a collection agency calls you or you get denied for a new loan…

‘’If I set aside major life changes that have a major impact on finances, like a divorce or the loss of your job, I find that most people did not realize what was happening until it was too late. More often than not, they did not have a budget, did not know the balance on their credit card nor the interest rate,’’ adds Pierre Fortin.

An effective tool to calculate debt 

Hence the importance of regularly testing your finances with a tool like testezvosfinances.com to ensure that your debt level remains stable year after year, or better yet, decreases.

‘’If you realize that your debt ratio exceeds 40%, you know there’s a problem that needs to be addressed. This does not mean you are facing bankruptcy, quite the contrary. The worst is when you don’t realize it or don’t want to face reality,’’ concludes our debt solutions expert at Jean Fortin.

To take this test, you will need the following facts:

• Your gross salary
• Your alimony, pensions, family allowances, and other secondary income
• Your housing expenses (rent or mortgage, condo fees, heating…)
• Your debt balances (credit cards, lines of credit, personal loans…)

The benefits of calculating your debt level 

First of all, this tool is the one that all financial institutions use to measure your level of indebtedness. It helps determine whether you are capable of taking on a new loan. But its real value lies in the fact that it is universal, simple, and allows you to track the progress of your financial situation over time. This is the best way to track where you stand and make the necessary adjustments if needed.

The limits of this online tool 

Unfortunately, this tool does not take into account your family situation or your personal expenses beyond those related to housing. Obviously, a single person earning $100,000 does not have the same financial obligations as a family with two children and two parents each earning $50,000. Additionally, it does not consider your lifestyle habits. Do you enjoy traveling, or do you have higher-than-average expenses for transportation, food, etc.? These factors will, of course, have an impact on your financial reality. These are a few examples of the tool’s limitations.

How to interpret the results of your debt ratio? 

After discovering your level of debt with our online tool, you will get one of the following results along with some advice: 

Who to consult when the level of debt is high? 

Even today, reaching out to a trustee can be intimidating. However, they are extremely well-positioned to answer any questions you might entertain and help you address a financial problem. Bankruptcy is never the first option that is considered. There are many other options that the trustee will take the time to go over and explain to you.

And rest assured, during your free informational meeting, the licensed insolvency trustee won’t lecture you either! Instead, they will be able to answer all your questions, reassure you if you have concerns, and help you reorganize and better plan your finances. If you have any questions or if your financial situation worries you, consult us! 

By Pierre Fortin
Jean Fortin & Associés
Personal finance advisor
Licensed insolvency trustee