6 Debt Warning Signs to Watch Out For

Be Aware of These Debt Warning Signs

How much debt is too much? Are you worried that if your current financial situation continues, you might be in trouble? It can be confusing to navigate your finances and correctly gauge when you’re getting close to needing debt relief.

However, many Canadians are in the same boat as you. The best debt-prevention method is awareness. Look out for the early warning signs to avoid future financial difficulties. Too much debt can lead to bankruptcy, foreclosure, and more.

If you want to find out if you have a debt problem, then learn how to spot these 6 debt warning signs.

1. You’re maxing out your credit cards

Maxing out your credit cards is an unmistakable sign of unmanageable debt. Banks use this metric as an indication that you’re struggling to manage your expenses. Many people utilize payday loans and high-interest loans to help pay off their credit card bills. However, it is prudent to be wary of this strategy, as it can lead to accumulating a mountain of debt. Once debt piles up to excessive levels, it can be challenging to make a financial recovery.

2. You’re only able to make the minimum payment on your lines of credit

A common mistake we see is people paying off the minimum required payment for their credit cards and lines of credit. While this strategy will ensure that you’re meeting your financial obligations, it is a poor long-term strategy.

Paying the minimum amount each month means it will take much longer to pay off your remaining credit. The longer you take to pay off this amount, the more your interest charges will pile up. Even owing credit under $500 can have a significant impact on your finances if it is not paid off as soon as possible. Interest charges can lead to the debt you owe doubling or tripling its size. Another consequence of only paying the minimum amount is that your credit balance can increase to a point where even the minimum payments become difficult to afford.

Therefore, if you cannot afford to pay off more, you likely have too much debt. This will also impact your credit score, making it more challenging to get loans in the future. Take a good look at your statement. Many statements will tell you how long it will take to pay the account in full at the minimum payment. I have seen many statements with time periods as long as 200 years.

3. You’re not using a budget or you can’t balance your budget

We get it; budgeting is annoying to implement. However, it is an essential skill that is often the difference between being debt-free and debt-ridden. A lack of budgeting often implies an incoherent picture of finances, such as which bills to prioritize and which statements to skip.

If you find yourself struggling with bills and making payments every month, use budgeting to solve your problems. Budgets help borrowers plan and strategize how they will manage their debt. Keeping track of expenses helps you identify financial patterns that you want to avoid. It also helps keep your finances on track, enabling you to save more in the long run. Also writing out a budget is a good way to spot problems. If you can’t make the income match up with the mandatory expenses then you know you will need additional help or income to survive.

4. You’re missing collection calls

Missing collection calls from debt collection agencies is another red flag. Missing required payments is detrimental to your financial future. For example, it can lead to being black-booked in the pages of lenders. It can also negatively impact your credit score.

The best thing to do when you receive collection calls is to take steps to address the situation. Try to adjust your spendings and savings. Also remember, you have many options when attempting to alleviate your debt. For example, a consumer proposal is an excellent solution for those with mounting financial issues. A proposal is essentially an agreement to forgive or settle your debts. Therefore, this can halt calls from lenders and collection agencies almost immediately, which is ideal for escaping the debt cycle.

5. You’re missing emergency savings

Anything can happen, and you need to be prepared for the worst-case scenario. Financial experts always advise having an emergency fund to prepare for unexpected expenses. If your debt gets to a stage that’s no longer manageable, having a rainy day fund to dip into can make all the difference.

However, if you’re struggling to make minimum payments, afford bills, and more, then it can be difficult to put aside even more for your savings. Still, treat saving as one of your most necessary expenses. It is a true investment in your future and the ideal strategy to overcome your debt. Any amount helps. Start with a small monthly payment towards your savings each month. Utilizing practices like auto-deposit, and a high-interest savings account can go a long way in helping build your emergency savings.

6. You’re worried about debt problems

Being overly stressed about financial obligations and difficulties is usually a good indicator of a debt problem. If the debt is taking a toll on your health and relationships, then it can create an emotional and physical effect on your well-being. The best thing to do in this circumstance is to lay out your expenses and take a hard look at what changes can be made.

Being aware of the warning signs of debt is the first step to debt recovery. I recommend consulting a debt specialist to address your concerns. Considering your options proactively is the best strategy to ease your worries. Our team at Kevin Thatcher & Associates has years of experience managing and alleviating debt problems. We will assess your situation and provide you with the best debt-relief solution to get you back on track. Consumer proposals and bankruptcy may be an option to consider as well.

To set up a consultation or learn about bankruptcy in Scarborough and the GTA, call Kevin Thatcher & Associates at 1-888-702-9801 or contact us here.

Speak to an expert today.