Understanding Debt Addiction: A Growing Issue in Canada
As we delve into the world of personal finance, a growing concern that we cannot ignore is the escalating problem of debt addiction among Canadians. This alarming trend has seen a surge in the recent decade, fueled by record low-interest rates and a society that is increasingly normalizing debt. The COVID-19 pandemic and its financial repercussions have only added fuel to the fire, leading to a worsening debt scenario.
Deciphering Debt Addiction
Before we delve further, let’s clarify what debt addiction is. Contrary to common misconceptions, debt addiction and shopping addiction are not synonymous. A shopping addict typically seeks to fill emotional gaps with material possessions, while a person suffering from debt addiction uses borrowed money to sustain a lifestyle beyond their means – be it properties, vacations, luxury goods, or experiences.
Debt addicts often resort to new loans or credit cards once they exhaust their existing lines of credit. This risky behavior makes them a high-risk category for lenders, resulting in higher interest rates and stricter repayment terms for new accounts. As debt addiction spirals out of control, it is common to find individuals using new debt to repay old debts, leading to a cycle of borrowing that often culminates in insolvency.
Identifying Signs of Debt Addiction
It’s essential to recognize the symptoms of debt addiction early to begin the road to recovery. Here are some key indicators:
- Anxiety at the thought of not having a credit card
- A pattern of applying for new credit cards or loans
- Using credit for purchases despite knowing you lack the means to repay
Concealing your debt from loved ones
Avoidance of banking and credit statements due to fear of confronting the problem;
If you identify with any of these signs, it’s time to reassess your relationship with debt.
Breaking Free from Debt Addiction
Recognizing the problem is the first step towards tackling debt addiction. Here’s how you can regain control:
Document Your Debts – Start by listing out all your debts and their respective balances. Checking your online banking accounts and pulling out a free credit report from agencies like Equifax and TransUnion can help ensure you’ve accounted for all your debts.
Stop Relying on Credit – Cut your credit cards, cancel your overdraft, and put a hold on any lines of credit. Going forward, rely solely on cash. This might require you to rework your budget to align with your actual income and obligations.
Prioritize Debt Repayment – Include minimum debt payments in your budget. Choose a debt with the highest interest rate or the lowest balance and allocate an additional amount towards its repayment. Continue this process until you’ve cleared all your debts.
Set Realistic Goals – Avoid setting unachievable targets that can lead to discouragement. If your budget is already stretched thin, consider seeking external help.
Seeking Help
Don’t lose hope. There are various resources available to help manage your debt:
Financial Institutions – Your bank may offer financing options like consolidation loans that lump all your debt into a single payment with a lower interest rate.
Credit Counsellors or Creditors – They can provide options for payment arrangements or renegotiation of your balance or interest rate.
Licensed Insolvency Trustees (LIT) – LITs offer free confidential consultations to assess your financial situation and suggest strategies for a fresh financial start. They can advise on all options, including government-regulated Consumer Proposal and Bankruptcy.
The journey to overcoming debt addiction is not easy, but taking the first step towards acknowledging the problem can pave the way for a brighter financial future.
