Dealing with Debt
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  1. Dealing With Debt
  2. What is Net Worth and Why is it Important When Dealing with Debt?

What is Net Worth and Why is it Important When Dealing with Debt?

Do you know what net worth is? You see the term pop up all the time when reading about millionaires amassing net worths with at least six figures, but calculating your net worth as an every day Canadian consumer can be worthwhile too. Your debt to net worth ratio is especially important to consider if you need debt relief and want to get into better financial health.

What is Net Worth?

Your net worth is a simple equation: your assets minus your liabilities = your net worth.

It’s a snapshot of your personal wealth at any given point in time, and by tracking it, you’re gaining invaluable insight into how you’re faring when it comes to savings, paying down debt, and building up assets. If the calculation shows that you are going further into the red, what you have for assets will help determine which debt relief option might be best for you.

When calculating your net worth, you need to tally up your total assets, including:

  • Your real estate and property, such as your equity in the present value of your home, and your vehicles
  • Your investments, such as retirement savings, tax-free savings, and other savings accounts
  • Cash and collectibles (e.g. jewellery, art, antiques, and other rare items), especially if they have been appraised


You’ll also need to tally up your total liabilities, namely your consumer debt, including:

  • Your outstanding mortgage(s)
  • Consumer debt, such as credit cards and lines of credit
  • Student loans and personal loans
  • Amount outstanding on car loans and other bills
  • Any other outstanding debts (e.g. pay day loans, overdraft on your bank account, or money you owe family members)


Tally up your total assets and subtract the sum of your total liabilities and you’ll see how much you’re worth financially.

How Often Should You Track Your Net Worth?

While your monthly budget needs constant monitoring, tracking, and tweaking, your net worth doesn’t need as much work. It should be calculated at most once a year, and preferably at about the same time of each year to get a fair representation of your net worth. If you track your net worth come January 1, for example, try to make that a New Year’s habit.

Why is Your Net Worth Important When Dealing with Debt?

You might be wondering why net worth is important when trying to deal with debt. Even if your net worth is very low, and especially if you have a negative net worth situation (meaning that you owe more than the value of your assets), here are a few key reasons why net worth is important when dealing with debt:

It Helps You Appreciate Your Spending and Saving in the Past Year

Record your net worth each time you calculate it and put that sum next to your net worth from previous years to see how well you’re progressing. How is your net worth ratio changing year upon year? Is your net worth growing at a steady pace each year? Are you still in debt but are consistently chipping away at your debts each year?

It’s okay if your net worth went down in the past year as long as you understand what happened – did you go back to school full-time, did your investment take a hit, or did your home lose value?

It Helps You Decide How to Reallocate Your Funds

If you have credit card debt and consumer loans with hefty monthly payments, yet upon inspection from calculating your net worth you realize you have thousands of dollars saved up in tax-free accounts or other savings accounts earning very little interest, it may be much wiser to pay off debts with at least part of your savings.

High interest rates on your total debts could mean you’re only paying off the principle each month, and you’re better off using your savings to clear these debts and stop the bleed.

You may be leery to empty out your savings to clear your debt, and so you should be. When trying to tackle debt, especially highest interest rate credit card debt, you need to keep some savings in reserve to fend off an emergency.

In other instances, you might notice you have assets that you could liquidate to pay off debts. A deep understanding of what you own and what you owe could help you better strategize to pay off debts and create a stable, or even wealthy, financial future for yourself and your family.

It Helps You Set Realistic Goals

Once you have a grasp on your assets and liabilities, and how they change year-over-year, you can set realistic goals that are within reach. For example, if you’ve decreased your liabilities by about 20 per cent each year, you can tangibly set a goal of doing the same, or challenge yourself to a 25 per cent reduction in debts, in the upcoming year.

Gaining this intel on your net worth can set the tone for what’s achievable in the upcoming years of developing better financial health.

Do You Need Professional Help or Will DIY Debt Repayment Work?

If calculating your net worth each year is anxiety-inducing, and the outcome often results in a sum that’s deeper and deeper in the red with your debts, these could be tell-tale signs that you need the professional help of a Credit Counsellor. Don’t be alarmed in the slightest – sometimes, a task like calculating your net worth is the wake up call you need to seek external advice rather than struggle with DIY (do-it-yourself) debt repayment. Appointments at the Credit Counselling Society are free, confidential, and you can talk to a Credit Counsellor in person or over the phone. Your Counsellor will meet with you to go over your whole financial situation, answer your questions, and provide you with debt relief options and budgeting plans that suit your financial needs. You aren’t obligated to take any further action by speaking with a Counsellor and your meeting is a judgment-free zone. There are no hidden fees, fine print, or strings attached. Contact us by phone, email, or anonymous online chat. All you’ve got to lose is your debt.

Worried about debt?

Get help to overcome it.

The sooner you start dealing with your debt, the sooner you see an improvement in your credit report If you need some help getting started with a plan, or if you’re not sure if your budget is realistic, contact a non-profit credit counsellor for free, confidential help. Typically, the earlier you contact us, the more options you’ll have.

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