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Technology Eight red flags that you’re heading for debt problems

21:25  21 october  2019
21:25  21 october  2019 Source:   theprovince.com

Statistics Canada says household debt ratio edged lower in second quarter

Statistics Canada says household debt ratio edged lower in second quarter Statistics Canada says household debt ratio edged lower in second quarter

a close up of a hand: You might think you have a handle on your debt, but there are red flags to watch for that could signal you're getting in over your head.© Joe Raedle You might think you have a handle on your debt, but there are red flags to watch for that could signal you're getting in over your head.

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of Microsoft News or Microsoft. Always check with your advisor or other experts before making investment and other financial changes.

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

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 yourself using cash advances to make ends meet you’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.

Is This Missing From Your Plan to Get Out of Debt?

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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.

The Early Warning Signs of Financial Problems

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 and consolidated debt so 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 consolidation loan doesn’t get you out of debt , 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.

Signs Your Finances Are Headed for Trouble

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.

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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 warning signs , 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 solution for debt stress 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.

8 Common Sources of Money Problems and How to Solve Them

Next, take steps to either put a comprehensive do-it-yourself (DIY) plan together or get the help you need to set yourself straight on the path to better money skills and less debt. After two months, evaluate any DIY plan to see if you’ve made significant progress. If you haven’t, it’s time to call in professional help.

What to Know About the Best Way to Get Rid of Debt

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.

Related reading:

12 of the Fastest Ways to Get Out of Debt

Checklist for Solutions to Credit and Debt Problems

Online Personal Workshops and Webinars – Choose a Topic of Interest

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 email, check www.nomoredebts.org or call 1-888-527-8999.

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