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Canadian households have continued to increase their debt level during the third quarter of 2011, bringing it to 151% of disposable income, which could make it, eventually, the \u201cSword of Damocles\u201d hanging over the financial security of consumers for years to come.<\/p>\n
\u201cAbnormally low interest rates have allowed the ability to manage these high levels of debt relatively well, until now. But the Governor of the Bank of Canada, Mark Carney, has warned Canadians that they should exercise caution with their credit applications, as interest rates are going to reach \u2018normal\u2019 levels, sooner or later\u201d, as stated by Michael Gregory last December, senior economist of BMO Capital Markets.<\/p>\n
Speaking of indebtedness, it\u2019s through awareness that the recovery process starts, and for some, that time has already come. Desperate times call for desperate measures!<\/p>\n
Warning Signs that Indicate a Debt Too high<\/strong><\/span><\/p>\n 1)<\/strong>\u00a0Obtaining an advance from one credit card to pay the balance of another<\/em><\/strong>, or worse, only paying the minimum required. A handy method of payment, the credit card is only beneficial to you if the entire balance is paid monthly in order to avoid the almost usurious rates charged by financial institutions.<\/p>\n 2)<\/strong>\u00a0Repetitively paying just the minimum amounts on credit cards<\/strong><\/em>. Having a significant balance to pay on your credit cards is often a sign of financial incapacity and occurs when faced with unforeseen events or some of life\u2019s blows. In the same line of thought, using credit to \u201cfinance\u201d the acquisition of basic goods, such as food, clothing, medication, etc., indicates financial constraints that should not be lightly considered.<\/p>\n 3)<\/strong>\u00a0Late payments on rent or mortgage<\/strong><\/em>, or if you\u2019re incapable of paying for public services before the due date. A call from a collection agency should sound the warning bells loud enough to summon you to action.<\/p>\n 4)<\/strong>\u00a0Certain lines of credit (mortgage or not) and adjustable mortgage rates are particularly sensitive to the fluctuations of interest rates<\/strong><\/em>. An increase, even small, could have an impact on the monthly budget of property owners who have borrowed beyond their true repayment capacity. This is also what Philippe Ventura, CFA, President and Chief Financial Security Advisor at Chevalier, Meunier & Associ\u00e9s explains in his most recent French post \u201cIf you have a mortgage of $250,000 payable over 20 years, are you prepared to be subjected to a monthly increase of $276.13 in your actual payments in the event that the interest rate will climb up 2%?\u201d he asks. Actually, if you feel suffocated by reading just this paragraph alone, it\u2019s perhaps a sign that your level of debt relies more heavily on the family budget than you realize.<\/p>\n 5)<\/strong>\u00a0Monthly payments so high<\/strong><\/em> that they rule out any possibility of savings are yet another symptom of excessive debt.<\/p>\n Steps to Getting Out<\/strong><\/span><\/p>\n 1)<\/strong>\u00a0Nothing better than starting with good ol\u2019 Excel, listing all debts you\u2019ve incurred in detail<\/strong><\/em>. For example, the first line could be \u201cInstallment plan purchase, ABC Furniture Store, remaining balance $6,000, 18% interest rate, $300 monthly payment, deadline in 16 months.\u201d Each debt, including credit cards, should be indicated in this manner.<\/p>\n 2)<\/strong>\u00a0A plan of attack. This is where a software application like Budget Express becomes essential<\/strong><\/em>. Here, the objective is to determine the monthly amounts available to channel them towards reducing overall debt. The first thing to consider is the immediate budget reallocation to prioritize debt reimbursement with the high interest rate.<\/p>\n 3)<\/strong>\u00a0The monthly debt that has finally been paid must be directed towards the repayment of a second debt<\/strong><\/em> written on your Excel spreadsheet.<\/p>\n 4)<\/strong>\u00a0Along the way and subject to good credit, debt consolidation should be considered<\/strong><\/em>. Obtaining a financial loan or line of credit at a better interest rate will allow you to accelerate paying off your various financial obligations, especially those with high interest rates, thus limiting the number of repayments coming from left and right.<\/p>\n 5)<\/strong>\u00a0An highly indebted person must consider all the possible solutions to rid himself of financial burden. Selling real estate property or personal goods<\/strong><\/em>, for example, can quickly bring to end a debt that weighs heavily on one\u2019s budget.<\/p>\n 6)<\/strong>\u00a0Once the debt situation is controlled or is on its way to being resolved, it would be wise to partner up with a financial service professional<\/strong><\/em>. In the French text \u201cConsult an advisor, it pays off\u201d published by Conseiller.ca, the reader can take note of the words of Charles Sims, President of the Investment Funds of Canada, bringing attention to the \u201cadvisors who improve the financial knowledge of their clients, encouraging them to develop a savings and investment mentality, and assisting them in developing a financial plan,\u201d he explains.<\/p>\n Ideally, no one wants to have a voluntary deposit, a consumer proposal, or worse, bankruptcy. A rude awakening partnered with quick action can often prevent one from losing the shirt off\u00a0one’s back.<\/p>\n