Dealing with Debt Struggles Before They Get Worse

Many have debt, it’s just a part of life. But when you allow it to grow it can become a problem.

When you fall behind on payments and living paycheque to paycheque, it could be signs of a debt cycle that needs to be taken care of before it spirals out of control.

Earlier this year Equifax, the credit monitoring agency, reported a 19% spike in missed non mortgage payments such as credit cards and loans.

Some of the warning signs of a potential debt cycle can include:

– Spending more than your income

– Only making minimum payments

– Receiving past due notices

– Calls from collectors

– Overall debt increasing each month

When you have difficulty paying bills on time and allow bills to pile up because you are unable to pay them it’s usually a sign that something has to change, because it will only get worse.

Falling Behind on Payments

When you fall behind on payments, it can have a snowball effect that leads to damaging your credit score. Sometimes debt consolidation can be the answer to get your finances under control. This is where you take a personal loan or installment loan to cover the outstanding debt that has higher interest. It makes things easier to manage with one payment, and can save you money on the interest that you might be paying.

RELATED: Learn more about debt consolidation

Credit Card Debt

If you have maxed out your credit cards (or getting close) and are only able to make minimum payments that debt can take a long time to pay off. Using a personal loan for credit card debt is one type of debt consolidation that many use for taking care of their finances.

Many Canadians carry debt, with credit cards being one of the most common types. Making the right moves to deal with credit card debt can help with getting your personal finances on track. If you fall behind on your payments it can lead to late fees and other costs, along with harming your credit score. When you get behind on credit card payments, you’re paying more interest the following month.

If you were to have credit card debt of $1,000 with a 19.99% interest rate and only make minimum payments it could take 11 years to pay off.

card balance and minimum payments - goodcheddar

Outstanding Past Loans

If you’ve ever take out loans in the past that are high interest, paying them down can be a challenge where you might only be paying the interest and not the principal amount. This is another opportunity where debt consolidation may help.

If you have a past payday loan that you are trying to pay off and need extensions all the time, you are most likely paying just the interest. Using an installment loan or personal loan to pay off a higher interest loan will likely save you money. It can also mean lower monthly payments while paying off your debt and make life a little more affordable.

RELATED: Debt Repayment Methods You Should Know 

Managing Your Credit Score

Building your credit score is a slow process, and managing it is important so that your score will be high for when you might need it. When it comes to borrowing, lenders often look at your credit score as part of the approval process. For most, a loan is inevitable. It might be for a large purchase, travel, repairs, debt consolidation and more. Staying on top of managing your score helps you down the road when needed. 

credit score range

The average credit score in Canada is about 650, but to qualify for personal loans or installment loans with better interest rates you want to have a credit score of 700 or more.

If your credit score is closer to 600 you can still find options to borrow that may still make sense for debt consolidation purposes.

Being Prepared

If you decide that a debt consolidation approach is right for your own financial situation, you should also consider starting an emergency fund if you don’t already have one. This might provide funds towards future unexpected expenses and possibly allow you to avoid taking out a loan to cover bills or costs you might have trouble with in the future. Having such a fund on hand is always a good thing. Even if your finances are tight from month to month, putting away what you can for the future is sure to prove valuable. The last thing you want is being late on loan payments or other debt as it can impact your credit score.

As many as 25% of Canadians could not afford an unexpected expense of $500. Putting away just $25 towards an emergency fund every two weeks would build up a savings of $500 within about 10 months. If you find there are times when you can afford to put more towards your fund, it’s recommended to do so. Having such a fund is never a question of whether you will need it, because repairs and other expenses come up, it’s more of a question of when you will need it. 

Recommended Reading: 

Guide to Saving Money for Canadians

Dealing With Debt, Inflation and the Cost of Living 

Getting Ahead When Living Paycheque to Paycheque 

How a Personal Loan Can Help Pay Off Your Debt Faster 


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