Mental Health and Living with Debt?

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Have you heard? Debt is the new normal. Or at least, that’s what recent studies and reports have shown. A close look at how individuals and families save and spend money shows that more than ever, we are living beyond our means. One major source of debt that is a contemporary phenomenon is student debt.

More than ever, people have massive amounts of student debt that they will spend years and years trying to pay off. But there are other forms of debt like lines of credit and credit card use that we use and think about every day.

For instance, it’s easier than ever to get a credit card and with interest rates finally starting to come down from some record highs, many people have grown accustomed to the feeling of living with debt. Do you dream of a debt-free life? Does the idea of cancelling your debt fill you with a sense of relief and a new, optimistic outlook on life?

Dealing with Debt Stress

Living with difficult debt is a major source of stress for a person, but it doesn’t have to be your reality. In this post, we will go over some of the ways that debt can affect your quality of life. But don’t worry, we ultimately want to emphasize how it’s possible to bounce back from troublesome debt.

As Licensed Insolvency Trustees (formerly known as bankruptcy trustees), we are experienced and widely knowledgeable in Canadian bankruptcy law. We know which process is best for certain situations, and we can make sure that you can hold onto your assets. In some cases, bankruptcy is not necessary at all and clients can see results with simple debt management. No matter what your situation, we can help.

There are ways out of debt that many people aren’t even aware of. Too often people convince themselves that the debt is their fault, that they have to struggle to get out of it, or they just accept it as a reality and plan to live with it for the rest of their lives. But why try to forget about difficult debt when you can do something to actually get rid of it? It’s possible to live a debt-free life. Imagine the possibilities.

What Does Debt Relief Look Like?

Regardless of your personal comfort level with debt, you are entitled to a life where you can make your financial dreams a reality. Some folks might be convinced that starting a debt-free process with a consolidation loan is the best way to eradicate their debt.

However, if you have poor credit or a bad record of credit use, it is not recommended that you use a loan to cover your debt. If you go this route and end up missing payments, you’ll collect more interest and end up owing more than you did in the first place.

True debt relief actually lowers the amount of debt that you owe. If this comes as a surprise, then that’s another reason why it is so important to consult with a financial professional to weigh your options. Our trustees can help you get your debt questions answered and explain the pros and cons of any avenue of debt relief.

If you have a steady source of income and can commit to regular credit payments, then you might be a good candidate for a consumer proposal. This method of debt relief is also often preferred over bankruptcy because it allows the insolvent party to hold onto more of their assets.

For government-regulated forms of debt relief such as consumer proposals or declaring bankruptcy, our trustees can help. As a part of debt recovery and rehabilitation, we also offer credit counseling help

so that you can address the source of your financial issues. We’ll help you identify the things you want to achieve with your finances and show you how you can make it happen without falling back into old patterns.

Warning Signs of Financial Stress

If you are living under financial stress, chances are that you are aware of the problem. After all, the anxiety that comes with not being sure if you can pay all of your bills and living paycheque to paycheque takes up a lot of our energy. Not sure if your relationship with money is problematic? Take a look at these signs of financial stress and see if any resonate with you.

You don’t know how much debt you have. 

The biggest hurdle preventing many from achieving financial freedom is not knowing the total amount of debt owed.

You have credit cards that are near or above the limit. 

You make the minimum payment in order to charge on the credit card’s new available balance.

You conceal the extent of your financial situation from your partner. 

Money can erode the strongest bonds among partners and families. As one of the most stressful items in our lives, it’s always best to be clear and forthright about your position. Hiding important money-related items from spouses or partners can cause serious arguments and even end in divorce. If you’re lying about your spending habits and hiding bill statements, it’s only a matter of time before the truth surfaces.

You use credit card checks or cash advances to pay your bills. 

These credit card features cost money from extra fees or higher interest charges. It may seem convenient but can add to your debt load.

You were turned down for a credit card or loan. 

This likely indicates that lenders find you a high-risk borrower, meaning you’ve shown a history of overextending yourself with your spending and borrowing. Credit scores are almost always taken into consideration for major financial factors in your life like securing a mortgage or car loan. If you are already exhibiting signs of poor credit, then it’s time to turn that around.

You make late payments on bills or go into overdraft. 

This is an early sign you may be losing control of your money. You’re borrowing on borrowed money, which leads to interest fees and other bank costs. There are better ways to handle your money.

You carry a constant balance on your credit cards. 

If you have balances on credit cards from month-to-month, you might be lowering your credit score without realizing it. Up to thirty percent of your total credit score is made up of how you use credit cards. If you are not the most responsible credit card user, then you’re only compounding the issue at hand by keeping balances on your cards.

You use credit card advances to pay your bills. 

These credit card features come with added convenience, but that doesn’t mean cost money from extra fees or higher interest charges. It may seem convenient but can add to your debt load.

You borrow money from your RRSP or TFSA to pay for monthly expenses. 

Having either of these bank accounts in order to save for the future is an important step towards financial stability. However, you need to be using them properly. Is your TFSA or RRSP is occasionally stepping in to cover bill-paying duties? These accounts are part of your long-term savings strategy and meant for things like retirement or your children’s education funds. They are not meant to pay for debt or recurring monthly expenses. There are also limits and restrictions on using the money in these types of accounts, which can end up costing you come tax season.

You genuinely are hoping to win the lottery. In fact, it’s your retirement plan. 

Sure, you’d be hard-pressed to find someone who doesn’t want to win the lottery. The problem here is if a person is not realistic about their financial planning and expects a serious windfall to eventually swoop in and save the day.

In reality, you have a higher chance of being struck by lightning than winning the lottery jackpot—so why should this be your plan for retirement? There are certainly better (and more reliable) ways to plan for the future.

Lifestyle Adjustments

You’re struggling to ignore the reminders to pay your bills. Creditors are calling you day and night. You are afraid to check your bank statement and you don’t even want to know about the balance on your credit card. This is not an easy position to be in, but it happens more often than you think. So how do you recover from something like this? When debt snowballs and becomes a point of tension in your life, you are forced to make concessions and compromises to recover.

If you have wondered what can a debt consultant do for you and your debt problem, one of the most important things they can do is offer the counselling that you need to plan your financial recovery. As a consequence of debt, having to adapt your lifestyle can actually end up being a much-needed change.

What are some of the positive, forward-thinking lessons you can take away from a debt crisis? Here are just a few of the strategies that clients have used to develop healthier spending habits and tackle their debt once and for all.

Start Paying More Than the Minimum on Credit Balances

This might seem obvious, but it’s easy to fall into the trap of always paying the minimum amount on a credit card. You should always pay more than your minimum payments on your credit cards, overdraft, or line of credit.

If you only make your minimum credit card payments each month, it could take forever (no, really!) to get rid of debt. If you want to pay off your balance quickly, pay as much extra as you can afford. You might have to make some tweaks to your budget, but it’ll be worth it.

Spend Less Than You Plan to Spend

Most of us have wishes and wants that are bigger than our bank accounts. Many people get into debt and stay in debt because they tend to buy what they want whenever they want it. The fact is this impulsive behaviour is a recipe for disaster. Not even the wealthiest can get away with continuous frivolity.

If you want something, don’t buy it unless you can. It’s really as simple as that. Do you really need to buy that item? Would you have even wanted it if you hadn’t seen it in the checkout aisle, next to all the impulse buys? You’ll have to adjust your expectations as you work your way to pay off debt. The good news is that by the time your debt is paid off, you’ll probably have become used to holding off on impulsive spending. You’ll be more equipped to make smart, productive financial choices.

Here’s a helpful strategy to reduce your daily spending: pay with cash rather than credit. Studies have shown that people spend much more at vending machines or on event tickets when they use credit instead of cash. Overall, studies have indicated that people tend to spend at least 15% more on everything they purchase things using credit.

So, what does this mean for the average Canadian household? If they currently buy everything with credit cards to collect points or get cashback, they could save well over $3,000 per year if they changed their payment method to cash.

Pay Off Your Most Expensive Debts First

One of the smartest strategies for getting out of debt is to make minimum payments on all of your debts and credit cards except for one. Chose the one debt that is charging you the most interest and focus all of your extra payments on paying off that one first.

Once your first, most expensive debt is paid off, take all of that money that you were paying on that first debt and focus it on the next most expensive debt. Continue this method as you pay down each of your debts, and you will be left with your least expensive debt to pay down last.

Recovery Is Possible

You probably didn’t need much convincing about the negative effects of debt. But hopefully, you’ve become inspired and optimistic about the ways that you can get back on your feet. Go ahead and get in touch today by booking a consultation with one of our seasoned debt and credit experts. Our bankruptcy trustees are here to help and we understand the difficult position it is to be struggling with debt. With our help, you can turn things around sooner than you expect.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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