12 May Signs You’re in Financial Difficulty
We all want to be free of financial difficulty and in a perfect world we would be. All of our bills would be paid on time and the only loans we would have would be a mortgage on our house and perhaps a car loan.
Some people do reach this lifestyle, unfortunately, for too many, the opposite is true. They often feel bewildered and stressed as they try and juggle all their financial obligations. Too often they are trying to live a lifestyle that feels imposed on them-either to keep up with siblings, parental expectations, or simply ‘to keep up with the Joneses’ in their neighborhood.
Financial Danger Signs
Now let’s take a look at some of the financial danger signs that can put your financial difficulty:
1 – No Savings
In the years before credit cards became so available, the standard wisdom was that you should have two months income in your savings account to deal with emergencies or unexpected expenses.
Even an average couple nowadays, take home around $4,000.00 per month if both work. It is unlikely that most of these people carry $8,000.00 in savings, but they should. Anyone that owns a house, or a vehicle should expect that repairs and maintenance items will arise. This doesn’t even cover significant changes, such as disability, reduced hours at work, significant illness or job loss.
In fact, a recent U.S. study indicates that nearly fifty percent of adults would not be able to afford a $400.00 emergency expense.
In Canada, it is frequently quoted that our debt level ratios to income are in even worse condition.
So where does this lead to? Unfortunately, it leads to another danger sign of financial difficulty-payday loans.
2 – Payday Loans
Payday loans are used when someone cannot live within their budget and they can’t get a bank loan or get help from friends or family.
For example, your rent is due, and you borrow $500.00 today and have to pay back $580.00 on your next payday. But, the next payday you have the same problem and keep borrowing new payday loans for even higher amounts.
To be frank, you’d be better off borrowing from a credit card with 20% interest, as it would be cheaper. Many of the people that file a Consumer Proposal or Bankruptcy, have payday loans.
3 – Making Minimum Monthly Payments
Another sure sign you’re in financial trouble is when you only pay the minimum monthly payment. Often, you continue to use the card as well, and the cycle continues.
Unfortunately, many of our clients are in this position, and they often lament that the balance on their credit cards never seems to go down.
In fact, credit card companies are required to state how long it would take to pay down the balance based on the minimum monthly payment. The answer is shocking-we have actually seen a statement saying it would be more than 100 years! Many of the people paying minimum payments routinely show 40 to 50 years before the balance will be repaid. It is obvious that too many people use credit cards as a line of credit-the problem is the interest rates are 14% to 25% on the cards. No one should be using credit cards as a line of credit, period.
The above signs are just a few common signs of financial difficulty. Work and plan hard to avoid these problems if you can, but if you can’t, then get some professional advice from an LIT (Licensed Insolvency Trustee). We would be happy to help you attain a ‘debt free’ perspective at McLennan & Company Ltd., LIT.