How to use credit without getting knee-deep in debt

  1. Assess your financial situation
  2. Draw up a monthly budget
  3. Repay your debts

Credit is definitely a useful tool as long as you can stay on top of it.

Good habits start with daily financial management. It can be difficult, but the results are well worth it.

Take a hard look at each of the 3 steps above: they will allow you to be aware of your financial situation and decide which aspects of your financial management need improvement.

To see if your projects are financially feasible, you'll need to take a snapshot of your current financial situation.

Calculate your net worth

This exercise will allow you to make smart financial decisions when it comes to repaying your debts, buying a house, taking a vacation, or making an investment strategy.

Your net worth is the difference between what you own (assets) and what you owe (liabilities). Put simply, assets - liabilities = net worth.

How to find out your net worth

  1. Make a list of what you own (assets)
    List all chequing and savings account balances, personal property, real estate and investments in your name.
  2. Make a list of what you owe (liabilities)
    List everything you owe creditors (lenders), including your mortgage, loans and credit card balances.

What are your results?

If your assets are greater than your liabilities, you have a positive net worth.

If your liabilities are greater than your assets, you have a negative net worth and are, as they say, "in the red". You'll need to put a plan in place to put your finances in order and avoid going further into debt.

Now that you've determined your net worth, it's time to outline your monthly income and expenses by using the average of the last 12 months. Go to step 2.

Tools and tips

Your personal balance sheet

Calculate your net worth by listing what you own and what you owe.

Assess financial situation - Your personal balance sheet

It's important to assess the pace at which you spend and identify the areas where you could be saving for future projects you really care about.

A budget is simply a detailed estimate of expenses in comparison to monthly income.

Determine how much to allocate to each expense category.

List your income and expenses.

  • Print out your monthly account statements from the last 12 months (available on AccèsD Internet) or request them from your caisse. You'll need the information they contain about your expenses, the bills you've paid and the cheques you've written.
  • Pull out all of your receipts. They'll allow you to determine how much you've spent on purchases over the last few months.

If your income is greater than your expenses, consider saving the monthly surplus for an emergency fund or investing towards your goals.

If your expenses are greater than your income, you are in debt. It's time to think about ways to reduce your expenses or increase your income to rectify the situation. It's up to you!

Reducing your expenses

  • Do we really need a second car?
  • Is my wardrobe barely a year old?
  • Do we really watch all 109 TV channels we subscribe to?

Increasing your revenues

  • We really need that car; time to look for a better-paying job.
  • Fashion is my life; I need a second part-time job.
  • I love to watch TV; I'm going to ask for a raise.

Tools and tips

Your budget

This tool shows you how to calculate your earnings and expenses, and draw up a monthly budget balance sheet.

Make budget - Your budget

Determine how much to allocate to each expense category

This calculator can help you determine how much you need to cover all your expenses.

Do the math - Determine how much to allocate to each expense category

My budget tool

Available exclusively to Desjardins caisse members, the My budget management tool gives you an accurate picture of your everyday income and expenses.

Learn more - Budget management tool - My budget

If you keep spending on credit instead of saving, then you must pay off your debts first.

Before you do anything else, take the 7 tell-tale questions test.

How to get out of debt

  1. Start by pulling out all your latest statements with a balance owing.
  2. List all your debts, including:
    • credit card balances
    • line of credit balances
    • taxes
    • "Buy now and pay later" financing statements (furniture, appliances, etc.)
    • unpaid bills (phone, hydro, cell phone, Internet provider)
    • auto and student loan balances
    • loans from friends or family members
    • salary advances
    • alimony and child support

    List your debts and make a plan to pay them off.

  3. Select the order in which to repay your debts

    There are 2 ways to pay back your debts: start with the smallest amounts or start with the highest interest rates.

    Don't forget—you can make new resolutions at any time of the year. The important thing is to make the decision to repay your debts quickly.

    After you've made a plan to pay off your debts and put it into practice, you'll slowly but surely have more money to put in your emergency fund.

    An emergency fund will allow you to deal with unexpected situations which would otherwise require you to use your credit (your refrigerator needs to be replaced, your car needs repairs, etc.). Remember, if you need to dip into this fund, make sure to replace it as soon as possible.

    At this point, you will simply need to use your credit wisely.

    Before taking out your credit card, ask yourself the following questions:

    • Do I really need it?
    • Would I buy it if I had to pay cash?
    • Am I sure I can pay off my balance in full at the end of the month?

Tools and tips

List your debts and make a plan to pay them off

This calculator helps you determine what you need to do be debt free.

Do the math - List your debts and make a plan to pay them off

How to calculate your debt-to-income ratio

A simple way to assess your true financial situation.

Read tip - How to calculate your debt-to-income ratio