Debt can feel inevitable. Despite the stress, we know that a certain amount of debt can be expected and warrants planning rather than panic. But just how much debt is too much debt?
When Does Debt Become Unmanageable?
As a kid, do you remember climbing a tree higher and higher? You might remember how easy it was to get up there — but your stomach dropped as soon as you looked down and realized you climbed too high, and you don’t know how to get down.
The same thing can happen with debt. You can reach a point where your debt levels are just too high, but by the time you realize it, you don’t know how to get out of it. That’s when it’s time to find some help.
The problem is, though, it won’t be a magic dollar amount that tells you when you’re too high in the "debt tree" because everyone's threshold is different. Instead, there are more subtle signs to look out for.
Who Can You Turn To for Debt Help?
Credit Canada’s credit counsellors help thousands of Canadians each year find debt relief options that work for them. Whether it's negotiating with creditors or supporting a budget plan, we pride ourselves in being there to help you, even if you’re just looking for free debt advice.
Let’s take a look at what it means to have too much debt, what to look out for, and when it’s time to call the debt firefighters (that’s us!) to help get you down from that tree.
Learn about debt warning signs and debt relief options on the Moolala: Money Made Simple podcast.
4 Warning Signs that You're in Too Much Debt
Does your debt keep you up at night regularly? If so, we’re sorry to hear it. Sleepless nights can make a stressful situation more difficult to handle on your own.
But how do you distinguish trouble sleeping due to life’s regular stresses vs too much debt? If you notice any of these four warning signs, you might be in too much debt:
1. Transferring Balances Between Loans
Ever heard the phrase, “rob Peter to pay Paul?” That’s what transferring balances between loans is — paying one debt while simultaneously creating a new one.
This is an early warning sign that you’re in too much debt, specifically if you’re using one form of credit to pay another. Instead of bringing in more income to manage your debt payments, you’re simply moving money around.
Now, if you’re paying loans that have high-interest rates off with loans that have lower interest rates, this might be a prudent practice. But if you find yourself moving money around to make payment dates and it becomes a habit, you may have a problem. And, this practice always has an end since your many credit accounts will eventually become maxed out.
What's the worst form of transferring balances? Using credit card cash advances to pay off debts. This will bury you deep in interest and cost you a lot in the long run.
2. Struggling to Pay Monthly Minimums
This warning sign is self-explanatory — you're climbing towards unmanageable debt if you can't pay your monthly minimums. Some experts say that only paying the minimum monthly payments on your debts and nothing more can also be an early warning sign of financial strain.
3. Repeatedly Seeking Credit Increases
When you begin to struggle with debt, you might be tempted to seek more credit. Problem solved, right? Wrong.
This is a band-aid solution because as you acquire extra funds, you're digging yourself deeper and deeper into debt. You’ll likely continue your cycle of debt and start to incur more interest fees.
Regular credit increases can also be a double-whammy hit to your credit score:
First, if you're seeking more credit, it's usually an indication that you're getting close to (or already have) maxed out your credit. That means your credit utilization rate or debt-to-credit ratio is pretty high, which lowers your credit score. Ideally, you want to keep your credit utilization rate under 30 percent.
Furthermore, seeking credit increases result in hard inquiries, which also lower your credit score. Hard inquiries occur when lenders look at your credit score to determine whether or not to extend credit to you. Hard inquiries can stay on your credit report for up to three years.
Soft inquiries, on the other hand, have no impact on your credit score. Soft inquiries include things like checking your own credit score, or a potential landlord checking your credit score.
Bottom line? Repeated credit increases are usually an indication of people using credit to supplement their income, which can mask their true debt situation.
4. Getting Collection Calls from Debt Collectors
This is the most important warning sign and the biggest indication that you’re in too deep. Receiving collection calls means you haven’t kept up with your payments to your credit account(s) in months, meaning you have more debt than you can handle.
While it’s prudent to take action if you notice any of the above signs, debt collection calls are an undeniable indication that it’s time to get help.
How a Credit Counsellor Can Help
Non-profit credit counsellors offer a wide range of debt management services that could help you address your debts.
For starters, non-profit credit counselling services won’t cost you a dime — a great feature when you’re trying to get out of debt. They also offer non-judgemental consulting and advice to help build a tangible plan to get out of debt. Some things they might help you with include:
- Credit Counselling. You might want to learn more about the options available to you, and credit counsellors are trained with expert knowledge about all debt relief options and what you can safely afford.
- Debt Consolidation. They can arrange to combine your debts into one single lower monthly payment.
- Negotiating with Creditors. They can negotiate with your creditors on your behalf to lower the interest rate on your outstanding debts or stop the interest altogether.
- Financial Coaching. Certified credit counsellors can help you map out your financial goals and adopt new money management habits and behaviours to help you stay on track and out of debt.
Soar Out of Debt with Credit Canada
We know how intimidating and stressful it can be to acknowledge when you need support with debt. You’re not alone — Credit Canada is here to help you with debt relief options that will give you peace of mind. Remember: it’s never too early or too late to seek help.
Ready to kick your debts to the curb? Contact us today to book some time with one of our counsellors. All our credit counselling services are free, unbiased, non-judgmental, and confidential.
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