Many people struggle with personal financial problems. At some point in your life, you likely have found yourself strapped for cash, out of credit, and searching for options.
Below, we will address the four most common money problems faced by Canadians today. While reading, it is important to remember that you are not alone. Help is available, and you can use some of the following resources to help prevent these issues from happening to you.
1) Spending More Than You Make
This one may seem obvious, but sometimes “empty wallet syndrome” can seemingly sneak up on you! While there are expensive debts that you purposefully incur, such as buying a car, house, or even paying your kid’s school tuition, it’s often the everyday expenses—gas, lunch with a co-worker, or money for your kid’s field trip—that quickly eat away your overall budget. You may be left wondering where all your money went?
It's not that you’ve necessarily purchased big ticket items; often it’s the culmination of smaller expenses that really start to add up and cost you! Take the time to evaluate how much money you earn in comparison to how much you’re spending. You'd be surprised how quickly a daily $3 cup of coffee adds up. One helpful trick is to equate how much money something costs with how long you'd have to work to earn it. You'd probably be less willing to spend $50 on dinner if you consider how many hours you worked (or will need to work) to pay for it. Long term deficit spending is, of course, unsustainable. A great way to find out exactly where your hard earned money is going is to try our easy-to-use Budget Calculator—it only takes a few minutes to use and the results are often surprising.
2) Using Payday Loans
All too often, payday loans are used as “quick-fix” solutions for financial situations. For example, if rent is due tomorrow and you are low on funds, you may seek this quick-cash solution to get by in the interim, intending to pay it back next week when you get paid. Even if everything goes according to plan, there are a couple of factors that contribute to payday loans being a big problem:
Extremely high interest rates
Risk of falling into a vicious cycle of payday loans
The next time you consider a payday loan, you need to look at the annual interest rate on the loan, not just the standard bi-weekly rate. This can be difficult because the interest rate on payday loans are usually calculated on a bi-weekly basis. For example, most people see $18 for every $100 borrowed on a payday loan and they think the interest rate is 18 percent, which seems comparable to other credit products and interest rates. But what most people don’t realize is that the interest rate on their credit cards is calculated on an annual basis, not bi-weekly, so $18 for every $100 borrowed actually works out to an interest rate of about 468 percent. That’s why it’s important to look at the interest rates on payday loans as annual percentage rates (APR).
Another thing to keep in mind is that payday loans don't actually fix the money issues that caused you to use them in the first place. If you don't have the money for rent this week, making it so that you owe extra money next week to pay back a loan on top of your regular financial obligations is going to put you back in the hole. According to an article in The Huffington Post, this can lead to a vicious cycle of taking out new loans to pay for other loans.
3) Too Much Credit Card Debt
Credit cards are often used as a money management stop-gap. According to a recent study by TransUnion, Canadians are opening fewer cards, but spending more money on their existing credit cards. While this may feel like a short-term gain in that there a fewer cards, the debt-to-income ratio actually matters more.
Although credit cards have legitimate uses, one of the major money problems that people face is accruing interest. When dealing with credit card debt, it is important that you make payments on the principal amount owed rather than just the interest. Without eliminating the principal, the incurring interest will never go away.
To seriously evaluate your credit card debt, look at how many payments—paying only the minimum—it would take to pay off the entire balance. Our Debt Calculator can help with this. Without making a big effort to pay extra toward the principal balance, many people feel like they can't get out from under the debt.
4) Credit Score Problems
While credit score problems aren't explicitly money problems, they're closely related. Your credit score is used as the foundation for determining your creditworthiness for most long-term financial transactions. Having a suboptimal credit score may lead to higher interest rates on loans or purchases. Those interest rates, in turn, cause you to pay more money in interest and less in principal. While you can't wave a magic wand for perfect credit, it's important to regularly review your credit report to make sure that there's nothing irregular or inaccurate listed on it (like fraud or debts that should not exist). If you need help building or rebuilding your credit, book a free Credit Building Counselling Session by calling 1.800.267.2272. During this free session, one of our certified counsellors will pull your credit report, get your score, and tell you exactly how you can start increasing your score.
Most everyone has money problems at some level. By making a legitimate effort to understand how money management can resolve some of these issues can definitely help them become more manageable. And remember, most people are facing the same money issues you are, so it’s important to get the information you need to help you work towards your financial goals regardless.
To gain other money management and financial insights, and to know what options you have, sign up for a free debt assessment with one of our certified credit counsellors.