Five Signs You Have Too Much Debt…
Most people have some debt. Whether you are borrowing to buy a house or a car, using a line of credit to afford renovations, or using a credit card for a big purchase, debt is a daily reality for most of us. And when debt levels are kept under control, having a bit of debt may not be an issue. But if you find you have too much debt, that can often be a problem.
Each person’s financial situation is different. So how do you know your debt is getting out of control? You could have too much debt if…
…You Can Only Make Minimum Payments
When you have a balance outstanding on a credit card, your monthly bill will show a minimum balance payment you need to make to keep it in good standing. If you pay this amount, the creditor will be happy, but you will be charged a significant amount of interest on any unpaid balance. Paying only the minimum payment will also likely mean that you could be in debt for an exceptionally long time.
That is why it is always a smart decision to try to pay more than the minimum. If you are in a position where you cannot afford to make more than the minimum payment, you will quickly realize you have too much debt.
…You Borrow Money Or Use Balance Transfers to Stay Solvent
Sometimes people transfer the balance owing from one credit card, loan, or overdraft account to another. This can be a way to reduce the amount of interest you are paying (if you transfer the amount to a card with a lower interest rate, for instance). However, if you are using this strategy to ensure you are just making the minimum payments on these debts, then you will know you are in debt trouble.
…You Have Nothing Saved for Emergencies
Saving for emergencies is essential. And that means putting aside a portion of each paycheque in an emergency fund or savings account. You never know what life is going to happen (for example, the current COVID-19 pandemic and the effect it has had on our cost of living (groceries and gas costs have risen sharply) and the job market (millions of Canadians are still receiving CRB (Canada Recovery Benefit) government assistance until work opportunities open again).
If something like the pandemic, or even less-extreme emergencies such as a major car repair or a family illness occur, you will not have money put aside for when such an unexpected expense comes up and will need to access a credit card, payday loan or overdraft funds to cover the expense. That will put you further into debt.
If you are spending all your money each month, leaving you with no emergency savings, you will soon realize you have too much debt.
…You Have Reached Or Exceeded Your Credit Limit
If one or more of your credit cards is maxed out, or close to being maxed out, there is a good chance that you have too much debt. The same is true if you find yourself applying for new credit because you frequently do not have enough credit available to handle your expenses.
A good credit rating is awarded when you only use 30% or less of any credit available to you. So, if you have a credit card with $10,000 of credit on it and you are utilizing $9,000 of that credit availability, you will end up damaging your credit rating and will quickly realize you have too much debt.
…You Are Getting Calls from Creditors or Collectors
If you are missing payments or forgetting to make payments on time because you cannot remember what you owe or cannot afford to make the payments monthly, these are signs you have too much debt.
Once you miss a couple of payments in a row, or if you start missing payments regularly, you will start hearing from creditors and collection agencies. You may get an email reminder, then a letter in the mail and finally a series of telephone calls. If this happens, you could be doing severe damage to your credit score and you could even possibly face legal action if the collection agency takes the matter to a small claims court.
Collection agents are known to be quite “persistent” (to use the term loosely), which can become difficult. Unfortunately, these calls can sometimes end up being harassing, so you will want to avoid talking to the collection people if possible.
How To Finally Get Out Of Debt…
The first step to solving debt problems is to understand your debt situation. Most of us who are in debt do not realize we have a problem with it – or how serious the issue is – until we sit down and really look at our financial situations.
Making a list of all the debt we have is a fantastic way to consolidate the numbers. By doing so we can figure out how much we owe, who we owe it to, and how much interest is being charged on our debt. This helps create a strategy for reducing the debt owed. It is recommended that anyone who has debt pressures focus on paying off the debt with the highest interest rate first, since this debt is the most expensive to service.
Also, revising the household budget can really help. By cutting down on certain things (fast food or restaurant purchases, digital subscriptions like Netflix, etc.) it will be easier to use that “found money” to begin paying off the debt. Look for places where expenses can be slashed (even temporarily) to make debt repayment possible. It can be difficult to live on a tight budget, but it will be worth it once debt pressures are eliminated.
If you are struggling with runaway debt and you have tried some, or all, of the tips listed above, please reach out to a Farber Licensed Insolvency Trustee. Just CLICK ON THE FREE CONSULTATION BUTTON, below, or give us a call today. We are here to listen – and to help you.