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The Most Common Types of Consumer Debt & How to Handle Them

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    Coping With Debt ProblemsConsumer debt is debt that is owed by consumers rather than businesses or governments. This debt includes debts such as:

    • Credit card debt
    • Lines of credit
    • Student loan debt
    • Mortgages
    • Car loans
    • Personal loans
    • And many other types of debt

    According to a survey by the Canadian Payroll Association, the most common type of consumer debt is a mortgage on a principal residence, followed by credit card debt, automobile loans and lines of credit. The same survey also found that 36% of Canadians feel overwhelmed by their debt. According to credit bureau TransUnion, the average Canadian has $21,028 in consumer debt, not including mortgages. Recently, RBC estimated that Canadians will likely hit an all-time high in consumer debt this year. If you are struggling to make regular payments your debts, high levels of debt can cause stress and make it difficult to handle emergency situations.

    If you are spending a large percentage of your income paying down debt, you likely won’t be able to save very much money for emergencies or for your retirement. The Canadian Payroll Association survey found that 47 percent of those surveyed say they save less than five percent of their incomes for an emergency. This is less than is recommended. If you are not able to save for emergencies, an unexpected situation (such as a sudden large repair bill, a job loss or a medical situation) could cause you to go even deeper into debt in order to pay your bills. The more debt you have, the more difficult it becomes to manage.  

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    Debt Warning Signs

    How do you know if you have too much consumer debt? Here are some warning signs that you are too far in debt that you will need to make changes in order to avoid serious financial trouble:

    • You regularly miss bill payments or make payments late
    • You bounce cheques or put your bank account into overdraft
    • You can only make the minimum payments on your credit cards
    • You use new loans to pay existing loans (such as using one credit card to pay another)
    • You frequently look for new loans, either from established lenders, payday loan companies or friends and family
    • Your debt is causing you a great deal of stress
    • You’re receiving calls from creditors and collection agencies

      If any of these situations sound like you, you may have too much consumer debt and you should make changes in order to avoid a very serious financial situation. However, it’s important to remember that the situation is not hopeless. There are a number of ways to reduce consumer debt and get your financial life back on track.

    Debt Relief

    Every financial situation is different. This means that there is no “one size fits all” option that works for everyone. Your path to becoming debt free will depend on your particular situation. One important step to reducing debt is to create a budget and stick to it. In order to do this, you need to keep track of your income as well as every single one of your expenses, including debt repayment costs. You’ll then need to ensure that you have more money coming in than you have coming out. This will likely involve cutting expenses and reducing spending. If you can put yourself in a position where you have more income than you do expenses, you can use the extra money to pay down your debt more quickly, getting yourself out of debt over time. You can then start using this money to build up your savings.

    Help with Debt

    In some situations, budgeting alone isn’t enough to get you out of debt. Perhaps you do not have a high enough income. You may have too much debt to repay or too many expenses that cannot be reduced. If you cannot come up with a budget that allows you to pay down your debt, you may wish to speak with a financial professional. One person who can help you reduce your consumer debt is a licensed trustee in bankruptcy. Despite the name, this individual doesn’t just help people file for bankruptcy. Instead, a trustee will review your financial situation and provide you with information on the options available to you that could help you reduce and even eliminate your debt. This consultation (which is typically offered at no charge) can give you the information that you need to make an informed decision for your financial future.