Technology Eight red flags that you’re heading for debt problems
Statistics Canada says household debt ratio edged lower in second quarter
Statistics Canada says household debt ratio edged lower in second quarter
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Q: My husband’s niece recently got engaged and over Thanksgiving we got to spend some time with her and her fiancé, as well as extended family we don’t usually see. We learned that our niece is planning a destination wedding, and rather than gifts, they want everyone to be part of their big day. It all sounds great, and thank goodness it’s over a year away so that we can book time off work and save up. However, the way some family members were talking, it made me concerned for them financially. And what if they thought the same about us? Before I overreact and take on enough stress for everyone, what are some of the lesser-known red flags that financial trouble is coming? And is there anything we can do about it? ~Margot
Debt-to-income picture improved slightly in 2nd quarter
Canadians took on slightly less new debt last quarter, but they still owe $1.77 for every $1 they earned, according to Statistics Canada's latest national balance sheet. The debt-to-income ratio lowered by around half a percentage point from the first quarter of 2019, from 177.54 per cent to 177.1 per cent. It was the third consecutive quarterly decline, as income grew slightly faster than debt. Household disposable income increased 3.4 per cent since the third quarter of 2018, while household credit market debt grew 2.8 per cent. Despite the improvement in earnings, the total debt owed by Canadians is still growing.
A: Financial trouble can feel like it sneaks up on us, but it’s usually a long time coming. From making payments late, getting behind with the rent, or receiving collection calls or letters, many people can list off a few of the more common signals that someone has debt problems. But what about some of the lesser-known red flags that indicate financial trouble? How many of us would pick those up with a friend or family member, or more important, with ourselves?
It can be hard to know that you’re in the thick of a problem when it’s the normal way you live day in and day out. However, if you stop and take a step back, you can gain the valuable perspective you need to get yourself back on track. Here are eight red flags that should serve as warning signs that if you don’t change your habits, you’ll end up way over your head in debt.
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1. You paid for a fixed monthly expense with a cash advance
Taking a cash advance on your credit card is a very expensive way to get cash. It should be considered a last resort, not a way to balance your budget and afford your essential expenses like daycare, rent or mortgage payments. If you find yourselfyou’re on the fast track to financial trouble, because the cost of paying them back is more than most people realize.
2. You think that adding more debt is no big deal
If you think that you’re already far enough in debt that adding another few hundred bucks won’t matter, think again. It’s always easier to continue with our bad habits than to work hard to establish new ones. While the extra debt might not be the straw that breaks the camel’s back, the mindset that your debt is normal is a huge red flag.
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3. You got dumped
Too much debt is a dating red flag. If things were going along just fine until you had the money talk, take it as a sign to clean up your finances and credit. Get your payments back on track or make larger payments to pay your debt down faster and watch your credit rating take care of itself.
4. You don’t mind cheating a bit to spend what you want
There are many kinds of financial cheating, but one of the worst is when you cheat yourself out of a more stable financial future. If you think that “borrowing” a little from your RRSP, TFSA or children’s RESP to cover a bill is OK, take steps to figure out how you’ll repay yourself before you take the money. If repaying yourself within a matter of a few months isn’t possible, find a different way to meet your cash crunch.
5. You’ve got your lender on speed dial
When you’ve balance transferred andso often you have no idea what you’re paying for anymore, that’s a signal that whatever you’re doing isn’t working. Consolidating debt with loans, credit cards or other means requires a budget that prevents you from doubling your debt. If your , you know you need a new plan fast.
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6. You’re afraid to say that you can’t afford something
If you’re afraid to admit that you can’t afford to pay your part of a gift, family outing, child’s extra-curricular activity, or to attend a friend’s local wedding, that’s a red flag that you might have built a lifestyle you can’t truly afford.
7. Sticking to the minimum payment is your safety zone
If you have become accustomed to only making minimum payments on all of your debts, that’s a danger zone because you are entirely reliant on factors and decisions beyond your control. By nature, we tend to spend everything we earn, so what happens when rates or minimum payment amounts go up? Ask yourself how you will be able to meet your obligations and create a plan to ensure you’re working to pay off debt.
8. You think of all of your debts in round numbers
If you had to list how much you owe on your various debts and bills, and how much you have in your bank account, how accurate would your list be? If most of your guesses would be to the closest $500, that’s a red flag that you may owe more than you think you do. Not having a good grasp of how much you have, what you owe, and where you stand overall is a sign that you may already be deeper in debt than you think you are.
Zombie debt will haunt more Canadians as scourge of indebtedness rises: experts
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What can you do about red flags that show you’ve got debt problems?
You might have recognized yourself in some of the, but now you might be wondering what to do about them. While each red flag is a little different, the problem is the same: too much debt. When it comes to being in debt and needing a and options for debt relief, the first steps to take are the same.
Start by taking stock of your situation, e.g., what caused it, where you stand, and what you think might solve the problem for you. Debt is often the symptom we see, but what about the underlying problem — what caused the debts to pile up? Maybe there was an illness in the family that caused a decrease of income. Did someone’s hours get cut and the household budget didn’t get revised? Do you even have a budget that you follow? Is there a spending problem or undisclosed addiction? Do your best to get to the root of the problem because that will help determine your best course of action.
Next, take steps to eitheror get the help you need to set yourself straight on the path to better money skills and less debt. After two months, to see if you’ve made significant progress. If you haven’t, it’s time to call in professional help.
The bottom line on warning signs about debt and what to do instead
It’s never easy to deal with debt, but if you know you’re heading for a financial disaster, you can at least take steps to minimize the worst of it rather than let it hit you head on. Figuring out how best to deal with your debt doesn’t have to be a lonely road. There is lots of help available, from personal blogs to websites, apps for your smartphone, spreadsheets, workshops and professional services. Asking for help might seem harder than toughing it out alone, but having someone in your corner when the going gets rough will help you achieve success.
Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by, check or call 1-888-527-8999.
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