Recognizing the Debt Danger Signals
The saddest truth of unmanageable debt is most people’s inability to see that their debt monster is out of control. People simply don’t want to see that they have a real problem brewing.
Unfortunately, denial of the problem and the refusal to take early measures tends to make the situation worse. It prolongs their suffering and ultimately limits their options later. The biggest advice we can possibly give: Don’t wait until its too late, address your issue NOW.
Look for the early warning signs of financial trouble, and seek debt recovery help sooner rather than later.
Despite the recession, or perhaps as result of covering necessities because of it, Canadians continue to borrow at record levels. From 2001, the level of household debt has doubled.
The average Canadian adult has a record level of over $40,000 in unsecured household debt, including credit cards, bank loans, etc. Many of us are obviously carrying a significant amount of debt when job loss, illness, or other crisis beyond our control strikes.
That’s a staggering statistic. If you are the average Canadian, your debt has doubled but your income has not. Evolving into eventual debt trouble is unavoidable.
|Married or Common-law3|
|Divorced or Separated|
|Average family size3|
|Average monthly income4|
|Total credit card debt5|
|Total unsecured debt6|
Standard Debt Limit Calculations
The monthly disposable income guideline says that spending more than 20% of disposable (net) monthly income on consumer debt repayment is a sign of financial difficulty. If the family is larger than average, or the income is smaller than average, or the family wants are quite high, the 20% guideline is a sign of grave financial difficulty.
Some of us are fortunate to not be facing unmanageable debt. The truth is a lot of families are in serious financial trouble. Our ability to service our debt is a combination of the amount of debt we have (which is high), the interest rates we are paying (which are low today on most forms of debt), and our income (which for many Canadians has decreased during the recession). Our household debt as a percentage of our personal disposable income continues to rise.
In fact, according to the most recent numbers available, the average Canadian adult is carrying household debt of 140.8% of their personal disposable income. That’s the highest level in history and growing by approximately 6% per year. If you are the average Canadian, this means for every dollar you earn, you have $1.41 in debt. Obviously during this recession our debt has increased much faster than our income, and Canadians are spending more of each dollar they earn servicing their debts.
If you have a good job, and if interest rates stay low, you will probably be able to continue to service your growing debts for some time. Remember though… all it takes is a slight change in our situation, one too many debts, layoffs or injury, to knock us over the edge into insolvency.
When the wind changes; if you were to lose your job, or have your hours cut back at work, or go through a divorce, or have a medical problem so you couldn’t work, you wouldn’t be able to continue paying your mortgage, your car loan, your line of credit, and your credit card bills because your survival food, shelter, utilities take all the money you can manage to pay.
The way the credit system and economy has evolved, it is almost guaranteed that a very high percentage of people are going to fall into financial trouble. This kind of trouble is going to be seen as a sign of our times. The fact that so many people will need to cry “Uncle” means that debt or credit problems can no longer be considered a profound personal disgrace or blight on your integrity to be hidden. In the good times you were taught to believe in a “Buy Now Pay Later” credit lifestyle by those who could profit by your ongoing use of credit. No one could foresee this economic shift or considered possibilities of growing out of control in crisis. You will continue to grow into worse financial condition as long as you do not take action and eventually the outcome of action to be taken will be the same or will have worsened. No one should feel disgraced by taking action to stop the bleeding and get on with a happy productive life. So do not delay, if your debt has become unmanageable, take action Today!
Recognizing the telltale Debt Danger Signals of Unmanageable Debt
You may have a debt problem if:
- stressful situations are created in your family life due to a lack of available finances.
- depending on your income, your debts, not including your mortgage, are closer to or higher than the Troubled Canadian average of $60,000.
- you have amassed a credit card debt spread out over more than four credit cards, and you are having trouble making your payments.
- you are carrying a balance each month on any credit cards, because credit cards are the most expensive form of borrowing.
- you are only able to pay the interest and the service charges on your debt.
- you take a cash advance from line of credit to pay credit cards, and then next month take a cash advance from credit cards to make the minimum payment on your line of credit, you are simply existing to grow interest.
- you are regularly using a payroll loan or cash advance company to borrow money.
- you are always borrowing money to make it from payday to payday, perhaps from family and friends and then find yourself avoiding them because you cannot afford to repay the loan.
- you are afraid to open mail or have bills that you haven’t opened because you know you can’t pay, you probably have a debt problem.
- creditors are pressuring you and threatening to sue. You have received notification in the mail from a collection agency.
- your wages have been garnisheed.
- some of your public utility services have been cut off such as hydro or telephone.
How can you solve your debt problem?
Start by taking inventory. Make a list of all of your debts, and the monthly amount you owe and your income. Make a budget to see where your money goes each month. If you can cut expenses and use the extra money to pay off your debts in reasonable time, you have your perfect solution.
If you have more debt than you can handle, remember that a DebtMasterS Advocate can work for you to negotiate your debt, and get you financially free. If you think you are seeing debt danger signals, call us right away. It’s WAY better to check and find out that things are going well, rather than merely assuming they are and getting a nasty surprise later.