Battling the bulge

So, how bad is your debt hangover?

January is always a brutal month for overly indebted consumers, who burnt up the plastic during the holidays, and are now praying for intervention as the bills hit the mailbox.

Believe me, over-spending and going further into hawk was a big mistake. Canadians already owe more than their personal disposable income -- drowning in a sea of red ink with household debt now at a record $1.1 trillion.

And if ever there's a year when our No. 1 New Year's resolution should be getting out of debt and getting financially fit, it's 2008. Be warned. The U.S. is slipping into recession, and the fallout will hit Canada, where consumers are already feeling the pinch of a credit crunch.

"Canadians have never been in higher debt," says Laurie Campbell, executive director of Credit Canada, in a news release. "They have been digging deep into their pockets or stretching their credit lines to the limit, and they've been blowing their budgets big time."

Making matters worse, she says, is the misguided emotion that money buys love, which leads to wild overspending, followed by pangs of guilt and worry. Campbell says now is not the time to run and hide. Now is the time to take control.

"You can still look forward to a financially successful year if you take time to analyze your financial situation and take serious steps to remedy the problems," said Campbell.

Here's how: Sit down with yourself, with your family, and even with a credit counsellor, to review your financial situation. Be honest about debt and income, and if you can manage to stay afloat. Do a net worth statement, listing assets and liabilities.

Keep in mind, there's good debt, such as a mortgage, as long as you haven't borrowed against all the equity in your home. Then, there's bad debt such as using a credit card to pay for impulsive spending, like the hottest new car.

Set up a budget and resolve to stick to it. If you can't manage the debt, look at a consumer proposal, which may be able to waive interest and late-payment penalities, and make repayment manageable.

Convert high-cost credit card debt into cheaper lines of credit or consumer loans. For example, retail cards charge 28.85%, and standard credit cards charge anywhere from 18.9% to 19.75%, or higher for those who miss payments.

If your wallet is full of credit cards, set up a plan to pay them off, then limit yourself to one or two cards. Once out of debt, set up a plan to pay yourself first and build a nestegg for retirement. Remember, the March 1 deadline to contribute to RRSPs and save big money on 2007 taxes is only weeks away.