How do you know you’ve got a debt problem? It’s one thing to hear general warnings in the news, but it’s another to recognize them in your own life.
One remark Licensed Insolvency Trustees often hear from clients once they are underway with a solution towards being debt-free is that they wish they hadn’t waited so long. With debt being “the new normal” many people simply may not be aware they are headed for (or already in) a real financial problem; sometimes it’s not until they believe they are facing a bankruptcy that the true magnitude of the problem is realized.
Sands & Associates Licensed Insolvency Trustee Blair Mantin joined Global News to share some key points and financial warning signs consumers should watch out for when it comes to managing their debts, beyond obvious signs of a financial situation that is out of control such as missing debt payments or being subject to creditor collection actions.
Watch the video clip here, and read more below:
4 Warning Signs of a Debt Problem
These signs of a looming debt problem are recognizable but often overlooked. If you relate to any of these challenges, it may be time to take a closer look at your financial affairs and seek out professional debt help:
- Regularly Overspending / a Broken Budget:
There’s a crucial difference between having a budget that doesn’t work because you give in to overspending that you can afford (i.e. splurging for a night on the town that you didn’t plan for but have the cash to cover) and regularly overspending because your income just isn’t enough to meet your regular costs of living.
If you’re habitually using credit to cover the balance between your household expenses and income, at some point you’re likely to have a debt problem.
- More than half of participants (54%) in our most recent BC Consumer Debt Study said they used credit for necessary expenses they didn’t have enough income to cover.
- Many people that get caught in this type of cycle will wind up faced with a financial emergency that sends them into a financial crisis or find that eventually the debt payments become more than they can manage.
- Also consider if your money is stretched so thin thanks to debt payments that you’re unable to accumulate any savings or an emergency fund. Many people are just a small dip in income or an unplanned expense away from a financial problem. Relationship breakdowns, personal illness or injury or reduced employment are just a few common problems that can have serious financial impacts.
- Avoiding Account Balances:
Does any of this sound familiar?
- Having stacks of unopened mail;
- Avoiding discussing your finances with your spouse;
- Being behind in filing income tax returns because you know you owe money to CRA?
If the answer is yes, then chances are there’s a problem. It’s always better to confront the challenges head-on instead of waiting for them to become too urgent to ignore. It’s important to track your account balances and payments, otherwise it’s next to impossible to gauge (and celebrate) your progress or know where to adjust.
- Taking on More Debt:
“Accumulating more debt” – 42% of study participants said this was how they knew their debts were becoming a problem. These types of actions tend to have a snowball effect on your debt and are not always successful in helping you pay it off:
- Playing ‘financial Tetris’ by moving money from one credit card or line of credit to another
- You may technically be keeping payments up to date, but you’re not really paying anything down
- Using payday loans
- Payday loans often kick off a cycle/borrowing habit that is very difficult to break (not to mention extremely costly!)
- Very few clients we see have just a single payday loan – usually the range is 5-15 payday loans outstanding at the time they seek help with their debts
- Applying for a bank consolidation loan
- Consolidation loans through a traditional lender can be a good way to get a handle on debt, but they can be difficult to qualify for and if the underlying issues aren’t addressed many people will find themselves carrying too much debt again somewhere down the road.
- Making Only (or Slightly More Than) Minimum Payments:
This was the second-most frequent sign of a debt problem reported by study participants – 58% of people said “only making minimum payments” was how they knew they had a problem.
When you make only the minimum monthly payment you’re servicing the interest, keeping your account current and probably maintaining a good credit score – but you’re not actually paying off the principle. Eventually those minimum payments can become more than you can afford thanks to the accumulating interest.
- This key sign that you may have a debt problem is something that the bank shows you!
- By law federally regulated credit card companies must show you on your statement how long it will take you to pay off your balance if you pay only the minimum amount.
- We’ve seen people facing as much as 50 to 150+ years of debt repayment if they kept making only their minimum payments!
Where to Get Debt Help
The best thing to do when you want to talk to someone about your debt is to contact a Licensed Insolvency Trustee. They are the one professional in Canada fully qualified and legally empowered to advise you on your situation, and help you deal with your debts if you need a plan of action.
It’s important for consumers to understand that there are professionals (Licensed Insolvency Trustees) here to help you – and we’re not going to judge you. Debt is a problem that happens to a lot of people, for a lot of reasons – we want to give you the solutions.
Ready to get started? Book your free confidential debt consultation with a local Licensed Insolvency Trustee from Sands & Associates today.