Sometimes, you need a helping hand to overcome financial challenges, but knowing when to ask for help isn’t always easy. While everyone’s financial situation is unique, there are certain financial warning signs that suggest it’s time to speak to a Licensed Insolvency Trustee (LIT).
In Canada, an LIT is a financial professional with the knowledge and expertise to advise on all types of debt management solutions. An LIT will assess your debt problems and provide unbiased advice on how to fix them, which may include reworking your budget, getting a debt consolidation loan, declaring bankruptcy, or another solution. Unlike other financial experts, only LITs can legally administer a consumer proposal or bankruptcy to eliminate your debts.
With that in mind, here are 10 signs that you need to schedule an appointment with an LIT.
1. You have trouble managing debt payments and everyday bills
Do you struggle to keep up with monthly debt payments and other bills simultaneously? If so, this is a tell-tale sign that your finances are in trouble. And you’re not alone – over one-third of Canadians struggle to manage their daily finances or pay bills on time.
Your budget can quickly get overwhelmed when juggling multiple debts, like credit cards and personal loans. There will be little room for anything else, including the weekly grocery haul, the monthly rent, and fuel for your car. Saving money for retirement or building an emergency fund will also prove challenging.
With mounting debts, you’ll have no choice but to start sacrificing these day-to-day living expenses, negatively impacting your quality of life. An LIT can help you set up a plan to reduce your debt obligations, giving you more breathing room in your budget.
2. You constantly borrow money – even to pay off existing debts
There’s nothing inherently wrong with turning to credit occasionally, especially if you’re making a significant purchase like a house or car. But if you turn it into a habit, your finances can rapidly take a turn for the worse.
Borrowing money to cover daily expenses or make ends meet is a red flag indicating deep financial issues. It’s a tough cycle to break, especially since debt products like credit cards are easy to access. Over time, this pattern of borrowing can turn into a debt spiral that is difficult to escape.
Some people borrow money to pay off their debts, which is even worse. They overextend themselves, max out their credit cards or lines of credit, and apply for new loans to pay off the old ones. Of course, with the mounting interest charges, they’re no better off – the debt keeps growing and growing. If this situation describes you, consulting with an LIT can help you stop this dangerous cycle.
3. You frequently pay late fees and other penalties
One of the surest warning signs of debt trouble is making late payments. Typically, this results in creditors tacking on late fees to your account.
While late fees may be relatively small compared to your balance, failing to pay on time will damage your credit score. Your payment history accounts for the bulk of your overall credit score (around 30%), so habitually paying late will cause it to plummet.
Besides late fees, some creditors will increase your interest rate if you miss payment deadlines too often. This is the case with credit card companies, which charge a penalty interest rate for cardholders who fail to pay on time.
An LIT can help you consolidate your debts under a consumer proposal. Under this debt relief program, your monthly payments will be lower, making you more likely to pay on time. And you won’t pay any late fees or interest, too.
4. You get calls from creditors and collection agencies
No one likes receiving harassing calls from creditors or collection agencies. But if this is a regular occurrence in your household, it indicates that your debts are becoming unmanageable.
There are strict debt collection laws in Ontario (and elsewhere in Canada) prohibiting collection agents from being excessively aggressive and intrusive. However, debt collectors can still be very persistent, and the constant pressure you face can negatively affect your job, family, and overall mental health.
An LIT can help you understand your rights as a debtor, negotiate with your creditors, and stop collection calls for good.
5. Your creditors are threatening you with legal action
Late fees and collection calls aren’t the only tactics your creditors can employ to get you to pay—they can also sue you.
If you receive a legal notice or suspect that your creditors may take you to court soon, it’s vital to act quickly. Some legal actions that creditors can take when you don’t pay them are garnishing your wages, freezing your bank account, and putting a lien on your home.
An LIT can help you address these legal repercussions before they escalate further. Depending on your situation, you may file a consumer proposal or personal bankruptcy, which will immediately stop any legal measures taken by your creditors.
6. You’re unable to obtain new credit
If lenders repeatedly deny you a loan, there’s a good chance it’s because your credit is in rough shape. A low credit score signifies to lenders that you’re a high-risk borrower. As a result, you won’t qualify for a conventional loan at a competitive interest rate.
Being denied credit can be devastating if you desperately need it. For example, you can quickly fall behind on other financial commitments like your utility bills and mortgage, resulting in service interruptions and possible foreclosure on your property.
An LIT can help you deal with taxing debts holding you back from getting a loan. Once those debts are reduced or eliminated, you can take steps to improve your credit.
7. You rely on payday loans and other high-interest debts
Payday loans are a convenient way to borrow urgent cash when your bank account runs dry. Unfortunately, they come with steep interest rates and short repayment periods that can trap you in a harmful cycle of debt. If you routinely visit a payday loan lender to cover daily living expenses or pay down other debts, your financial situation is unsustainable.
The same danger applies to loans issued by some companies in the alternative lending industry, which includes online lenders. The interest rates on these debt products easily eclipse those found on credit cards; they can be as high as 60%, the highest rate legally allowed in Canada.
The outrageous interest rates on payday loans and other high-interest credit products can significantly increase your debt burden. Eventually, repaying the balance becomes impossible. That’s why it’s wise to avoid payday loans and other high-interest credit as much as possible. An LIT can help you explore alternatives that are more affordable and manageable.
8. You’re making minimum or interest-only payments
Do you constantly pay only the minimum amount on your credit card or the interest portion on your line of credit? If so, that’s an alarm signalling your debts are too much for you to handle. Essentially, you’re stuck in a debt cycle, making no meaningful progress in paying off your principal. If this describes you, an LIT can help you find a way to reduce your balance faster and spare you from paying hefty interest charges.
9. Your financial stress is affecting your well-being
Money troubles don’t just affect your budget and credit score; they can also take a toll on your mental and physical health. The stress that accompanies debt issues can lead to depression and anxiety, which can negatively impact your job performance, strain your relationships, and lower your overall quality of life.
If financial stress is plaguing you with sleepless nights and affecting your daily activities, it’s time to consider seeking professional advice. An LIT can review your situation, help you understand your options, and develop a plan to reign in your debts. Knowing that long-term solutions are available — and moving forward with them — will bring you peace of mind.
10. You’ve tried to solve your debt problems on your own, but nothing is working
It’s entirely possible to tackle your debt problems on your own. There are plenty of DIY debt management strategies you can employ to pay down your balance, lower your interest, slash your expenses, set up an emergency fund, and more.
However, going it alone is not always feasible. If you’re living paycheque to paycheque, have poor credit, and cannot pay your debts as they come due, there’s no shame in asking for help. It may be the most practical and effective way to get financially back on track.
An LIT can assist you in getting your debts under control with the help of debt relief programs like a consumer proposal. Under their guidance, you’ll make meaningful progress in rebuilding your financial house.
Reaching out to a Licensed Insolvency Trustee
Do one or more of the warning signs in this article apply to you? If so, it’s time to have a chat with an LIT to explore your options. Often, people make the mistake of waiting too long to reach out to a trustee. But the sooner you seek help, the sooner you’ll be on the road to financial recovery.
At David Sklar & Associates, we’ve been helping people across Ontario resolve their debts and reset their financial futures for over 20 years. If you’re struggling to pay your bills and feel trapped, we can set you up with a long-term debt relief solution. We’ll show you all your options and guide you through the process from start to finish. Contact us today to set up a free, no-obligation consultation with one of your LITs.
