Money & Career

5 signs you have a debt problem

Author: Canadian Living

Money & Career

5 signs you have a debt problem

Canadians owe money -- a lot of it. In 2011, Statistics Canada reported that household debt in Canada has more than doubled and the debt-to-after-tax income ratio for households had increased to 148 per cent, meaning that between mortgages and personal debt, the average household now owes about one-and-a-half times its annual net income.

But despite this trend, people won't talk about their debt. That's the thing about debt -- it's a topic that remains hidden in the dark corners and often only comes to light when it's too late and you've become overwhelmed with it.

Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, says that there are classic signs that your debt has become a problem. Here's what to watch for.

Debt problem #1: Refusal to acknowledge debt
You're ignoring bank and credit card statements. You're letting voice mail take all your calls because you don't want to talk to creditors or family members who want their money. Bills are piling up and you dread the delivery of the mail. Some of the less severe signs include just paying the monthly balance or continuing to spend to keep up the façade that you have money, even if you can't afford it.

Debt problem #2: Don't ask, don't tell
You don't talk about money with anyone, not even your partner. Your partner, in turn, may not ask you about bills or money. Schwartz says that while a couple or family might suspect or know about debt, they often avoid the topic just to keep the peace. For example, he says "If I know my wife has a nagging credit card statement and I don't want to get into a fight, I won't ask."

Debt problem #3: Robbing Peter to pay Paul
Schwartz says the best example of this situation is using one credit card to pay off another. "That's never good," he says, "because you get into a spiral very quickly and it's hard to climb out of it."

Debt problem #4: Spending the rainy day fund
Financial experts recommend having an emergency fund just in case of financial emergencies, such as disrupted paycheques or job loss. It's when you spend the rainy day fund for no good reason, promising yourself to replace it, that it becomes a debt problem. Falling into the cycle of spending your emergency fund when it's not an emergency is a classic sign of mounting debt.

Debt problem #5: Using your overdraft
Overdraft protection on your bank account allows you to spend more money than you actually have. It's advertised as a cushion just in case you're caught short on funds, but as Schwartz points out, going into overdraft on a regular basis is a sign that you're not financially sound. Keep in mind that every time you borrow money from your overdraft, you're not only paying back the amount but interest and charges on the overdraft, too, making it just another form of debt.

Ultimately, your debt situation will come to light no matter how hard you try to hide it. But early recognition and acknowledgement of these signs will help you get a handle on your debt before it spirals out of control.


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Money & Career

5 signs you have a debt problem