Finance

5 Warning Signs That You May Be In Too Much Debt

Many Canadians are unsure how much debt is too much and worry that you might get into trouble? After all, unlike the fuel gauge on your vehicle or the smoke detector at home, there is no handy device to tell you when you need debt relief. While banks have a debt-to-income formula based on your debt-to-income ratio, they may approve more credit than you can actually afford. Here are 5 warning signs that you may have a debt problem and what you can do instead:

Too Reliant on Credit: First Warning Sign

Relying too much on credit is one of the surest signs that you have too much debt, but what does that actually mean? It’s not so easy to look at how much money you owe or how many credit cards you have. Relying too much on credit means you can’t afford your routine spending with the money you bring with you each month.

Imagine that you can’t buy anything on credit tomorrow. If you’re already making payments for a house, a student loan, or a car, then they’re fine, but you can’t use credit cards or credit lines at all. How long could you do that? One week? One month?

If you think you can hold out for a month, but that confidence to the test and stop lending for 30 days. That means whether you’re buying groceries, clothing, or anything else, you’re only using money in your chequing account and cash in your wallet. Currently, this completely won’t be convenient, particularly for products and services such as subscriptions or your phone bill.

Whenever there is a payment you only need to make with a credit card, you pay it back the same day via online banking. If this is not practical, but the payment amount in an envelope or savings account, and do not touch it until the 30 days have expired. If you have problems buying things you normally get without a second thought, then you may be too reliant on credit in your daily life.

Minimum Credit Card Payments Only: Second Warning Sign

Making minimal credit card payments is a trap that, unfortunately, many Canadians fall into. After all, you are still making the monthly payments your creditors demand, and you may still have a good credit score. But behind this illusion of stability lies an ever-widening gap in progressive risk.

Why are minimum payments a problem? Making only minimum payments means that you just carry on, but don’t progress or pay off the debt in any way. The interest you pay is eating into the money you have to spend, and that could lead to you using more credits to balance it out. This new loan has its own interest and continues the cycle. Before you know it, your balance could become so high that you can’t even afford the minimum payments anymore, and that’s just the tip of the debt iceberg. This is a red flag that shows that you need help as soon as possible, especially if you use other forms of credit – such as a high-interest loan or cash advance – to pay off existing debts.

So instead of making minimum payments, what can you do? It’s crucial to reduce your spending. As you approach this debt cliff, get help right away. You’ll have more options for debt relief, and you’ll sleep better if you have a plan.

No Budget: Third Warning Sign

Those who don’t plan what to do with their pay cheques often simply don’t know how to budget. Does that sound like you? It’s true that some people are doing well without ever thinking about budgeting. Others are coping with an alternative way of budgeting, where they just keep a list of their expenses instead of memorizing their back account. However, most people who have debt problems can see a real and immediate improvement in their financial situation once they create a budget and stick to it.

Why is using a budget not a problem? Many people feel overwhelmed at the thought of making a budget and then following it. They don’t like to keep track of what they’re spending. It can feel stressful, but ignoring spending won’t make them disappear. It will only make it harder to get your finances back on track.

All a budget really does is help you make the decisions you make in advance to use your money. In the end, having a plan and executing it will do more for you than any financial program out there. The best debt relief organizations also offer budget support. If you need that extra boost and expertise to make a budget that works for you, then we’ll be happy to help you.

No Savings For A Financial Emergency: Forth Warning Sign

If there is one thing the last few years have shown us, it is that anything can happen at any time and that saving is crucial to a financial emergency. Preparing for unexpected spending is one of the best debt solutions in the world because when an emergency occurs, you don’t need to get into debt at all.

But if you are already struggling with debt, making minimum payments, or not sticking to a budget, it is difficult to set aside money for that inevitable rainy day. However, savings are one of your most important expenses when you outline your budget. Without debt, it is almost impossible to get out of debt. If you cannot accumulate any savings at all, the debt may be worse than you realize. The longer you wait for professional help with credit counseling, the more time you spend being financially vulnerable to the unexpected.

Worrying About Your Debt: Fifth Warning Sign

If you think about how high your debt is and wonder if it is too high, you probably have a problem. When it comes to your financial health, there is nothing to be too careful about. The fact that you are worried about debt and have read so far means that it is worth taking the time and effort to figure out how you can repay your debt and get back on track.

The solution? Debt is a symptom, so it is important to go deeper and identify the reasons why you have debt. Unless you know what is causing your debt problem, you will not be able to find possible solutions. No one knows your situation better than you. So, if your gut tells you that you need to make a change, listen to it. We know that the first step in dealing with your debt can feel like a big obstacle to overcome. But this step will set you on the path to a better financial future for yourself and your family.

How To Find Debt Relief Options If You Think You Have Too Much Debt

If one of the warning signs leads you to believe that you are in too much debt, start your journey towards debt reduction by talking to one of our friendly credit counselors. A professional counselor can help you review your financial situation and explore debt relief options so that you can find the solution that works best for you. As a non-profit organization, we are committed to helping Canadians achieve their financial well-being.

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