The Hidden Costs of an Addiction to Spending
It’s not uncommon for individuals who are addicted to spending to be blissfully unaware of their problem until they’re buried under an avalanche of debt. Spending addictions can manifest from a young age and are often linked to mental health issues such as anxiety, depression, or feelings of loneliness. The thrill derived from impulsive spending can often mirror the euphoria experienced with substance abuse or addictive gambling. The Center for Addiction and Mental Health (CAMH) describes addiction as a term that ranges from a simple desire for pleasure to an uncontrollable compulsion.
The Unnoticed Epidemic of Spending Addiction
Spending addiction can lead to severe personal, financial, and occupational issues, influencing familial relationships and job security. Excessive and compulsive spending is a serious addiction that turns the spender’s life into chaos, leading to an unpredictable and dysfunctional lifestyle. Often, the spender conceals their addiction, and in desperate times, they may resort to shoplifting or employee theft.
Calculating the Cost of Reckless Spending
Imagine that you have an outstanding debt of $36,000 on your unsecured credit cards with an annual interest rate of 19%. You plan to pay off the entire debt in five years (60 months).
Your monthly payment would be: $36,000 / 60 months = $600
Your monthly interest would be: $36,000 x 19% / 12 months = $570*
*This is an approximation. The actual interest charges would be higher due to compound interest.
The total monthly payment: $600 (monthly payment) + $570 (monthly interest) = $1,170
Hence, to repay the principal debt of $36,000 in 60 months, you require $1,170 per month for 60 months. This means that you will have paid $70,200 to clear a debt of $36,000, of which $34,200 is purely interest charges.
The Credit Card Payment Calculator Tool by the Financial Consumer Agency of Canada is a useful resource for calculations.
Addressing Your Spending Addiction
Several organizations across Canada, including the CAMH, Debtors Anonymous, and The Canadian Mental Health Association, offer a plethora of programs for Canadians struggling with spending addiction. Many of these help centres offer their services free of charge.
How Can a Licensed Insolvency Trustee Help With Debt?
A Licensed Insolvency Trustee can help you discharge most, if not all, of your unsecured debt through a bankruptcy filing if you find yourself unable to repay your debt.
What is an Administrator of Consumer Proposals?
An Administrator of Consumer Proposals, who could be a Trustee or an appointee of the Superintendent of Bankruptcy, can help you consolidate most, if not all, of your unsecured debt through a proposal to your creditors. If you owe your creditors $250,000 or less (excluding a mortgage on your primary residence), you can make a Consumer Proposal. This is an offer to reduce your debt amount, extend the repayment time, or both. As per the Bankruptcy and Insolvency Act, a Consumer Proposal cannot exceed five years.
The Role of a Trustee or Administrator
The Trustee or Administrator will assess your financial situation and inform you about the formal and informal options available under the Bankruptcy and Insolvency Act, such as credit counselling or negotiating a settlement with your creditors.
They will assist you in devising a budget based on your income and expenses, counsel you on money management and shopping habits, and provide tips on obtaining and using credit responsibly. Their goal is to help you achieve financial stability.
Finding a Licensed Insolvency Trustee or Administrator of Consumer Proposals
A list of Licensed Insolvency Trustees in your area can be found on the Trustee Registry of the Office of the Superintendent of Bankruptcy website. Alternatively, you can reach out to the Bankruptcy Canada office in your region for a free, confidential, and obligation-free consultation.
