debt warning signs

5 Debt Warning Signs & How to Deal With Them

Accumulating too much debt typically does not happen overnight. It is more often a gradual process that builds up over many months and even years. As you go along making minimum payments everything appears to be just fine and life is good. However, if making those minimum debt payments is causing a monthly cash flow deficit, you are in trouble. Eventually, this will cause a critical mass of debt to build up. This will likely soon develop a momentum of its own with interest rates so high it will prevent you from being able to efficiently pay down the debt.

We recognize that life is busy and it can be difficult to keep track of payments and loan balances, but chances are there were multiple debt warning signs along the way. They were trying to tell you that you were going in a dangerous direction with your finances. Here are a few debt warning signs to watch out for, but more importantly, to take action on once you recognize that they exist.

The 5 Debt Warning Signs

1. You have no idea how much you owe or what you spend. Otherwise known as the ostrich strategy of putting your head in a hole and not looking at anything. This strategy of hoping your finances improve will rarely work.  We sometimes notice news reports about movie stars, pro athletes or singers who claim to have financial difficulty even though they have millions of dollars in annual income. They are still managing to spend more than they make resulting in a monthly deficit. This is a sure way of getting into financial trouble and our first debt warning sign.

2. You take cash advances from your credit card or from a payday loan service. This is a classic debt warning sign. The interest rates on these products can be staggering. By doing this, you have started into a cycle of cash advances that will accelerate your debt load very quickly. If you are facing this sign immediate action is required to rescue your finances.

3. Your debt problems are causing personal problems. This type of sign can manifest itself in a number of different ways. For example:

  • Having sleep problems is often cited as a result of having too much debt and trying to figure out what to do about it while you toss and turn.
  • Another personal problem could be escalating arguments with your spouse or partner regarding your spending and debt load. This aspect of your life will definitely improve once you obtain some help with your debt. Licensed Insolvency Trustees are trained credit counsellors. We have a variety of exercises that we can walk through with you that may help repair the relationship that you have with finances and with each other regarding your debt, spending, and expectations.
  • Your performance at work is suffering because you are worried about your debts.
  • You are experiencing an unusual amount of anxiety or other emotions, such as anger, that you don’t normally experience.

4. Your creditors are calling, or even worse, collection agencies are calling. This is a result of missed payments and is usually the first type of collection action that occurs. However, it can be the most annoying collection action as the phone never stops ringing. It is also a debt warning signal that you need to do something about your debt. In BC, one way to stop collectors from calling is to send a registered letter to the debt collector saying that you only want to deal with them in writing. This won’t make the debt go away but it may provide a little bit of quiet while you seek out your options.

5. You struggle to make your minimum payments. Making a minimum payment on a credit card is almost like walking to the edge of the water and throwing your money in. The money has disappeared and nothing seems to have changed. In fact, the balance of the debt may have increased due to the fast charging interest found on credit cards in particular.

Recently, credit cards companies have been required to disclose how long it will take to pay off the balance if just a minimum payment is made. Credit card statements now show the amount of time required to pay off a balance. It could take years and years due to the super high interest rates that are charged. In addition, if the full statement balance is not paid by the due date many lenders will then back date your interest charges to the date that the charge was placed on the credit card. This can result in up to a month of additional interest. In contrast, if the full statement balance was paid off then there would be no back dating of interest charges.

Ultimately, leaving an unpaid balance on a credit card has changed the card from a convenience to a financing tool. There are many better ways to obtain financing than via a credit card. Struggling to make your minimum payment or making that minimum payment month after month is a debt warning sign.

Get the Help You Need

If you are experiencing any of these debt warning signs you are not alone. Thousands of Canadians from coast to coast are in a similar situation. The good news is that once you are able to recognize the warning signs you can take steps to improve your finances.

As Licensed Insolvency Trustees, we are licensed by the federal government to provide assistance to reorganize your debts. If you are unable to obtain a debt consolidation loan, there are several other options that can be of help such as a federally regulated Consumer Proposal or filing for bankruptcy protection. Currently, the most popular way in Canada to obtain debt relief is via a Consumer Proposal.

While these terms may sound a bit scary, we would encourage you to schedule a free appointment via telephone from the comfort of your home or arrange to come into the office in person and ask questions. Soon you will realize that there is a safe, government regulated pathway to a better financial future. Go ahead and make that first appointment, it’s free!

Derek L. Chase, CPA, CA, LIT

Being able to offer debt help assistance to individuals and corporations on a more intimate basis was a driving force in completing a “second CPA” by becoming licensed by the Federal Government as a Licensed Insolvency Trustee (previously Trustee in Bankruptcy) in 1997. It is extremely satisfying to be able to witness lives change for the positive due to a restructuring of financial affairs.