The Warning Signs of a Debt Trap – What to Know

Credit and loans are powerful tools that allow individuals to live a comfortable life—they’re empowered to purchase a good home, a private vehicle, and provide the fulfillment of other desires. It can be likened to a strong drug—taken in careful and appropriate doses, credit can be a lifesaver especially during the hour of need.

Increasing dosage without much regard for anything else, unfortunately, can lead to dire consequences. In other words, accumulating too much debt can be detrimental to an individual’s entire financial life. By the time someone realizes they’ve taken more than what they can chew, they’re already in the clutches of the infamous debt trap. 

With necessary payments and bleeding interest to deal with, getting out of a debt situation can quickly drain savings and spiral lives into stressful situations. There are ways to identify the signs of a debt trap, however, and here are some of them: 

Sign #1: Unable to build savings 

One unmistakable sign of falling into a debt trap is unable to successfully save money. Having an emergency fund at the ready can help individuals out of tight situations, but with debt repayment to worry about, building savings can be close to impossible. Most of their income is likely funnelled towards other expenses and installment plans, which then traps an individual further into debt by using credit cards. 

Sign #2: Continuously making purchases using credit cards

Without much cash on hand, individuals stuck in a cycle of debt are forced to use their credit cards even more. This can be detrimental to the efforts of getting out of debt, as credit cards pile up not only in payment but interest. This cycle also likely leads to a budget stretched too thin, rendering the individual only able to pay the bare minimum each month. Unfortunately, this results in steep interest rates. 

Sign #3: Making late monthly payments

Another unmistakable sign of the debt trap is paying bills late. Unfortunately, it’s an occurrence that clearly states that an individual does not have enough money to pay for bills. Much of their income will likely be for debt repayment, leaving no time for other expenses. Sadly, late payments can also affect a person’s credit score, further hurting their financial stability.

Sign #4: Issuing bounced checks and overdrafts 

Once an individual experiences bounce checks and overdrafts, it’s a sign that debt payments are spiralling out of control. Spending may have now also become uncontrollable, as an empty bank account can be a result of poor budgeting and further debt. Unfortunately, banks charge overdraft fees and non-sufficient funds, which deepens the debt trap even further.

Sign #5: Experiencing denied credit

As previously mentioned, credit can be a lifesaver. It enables individuals to live comfortable lives, but credit card companies and other lenders only lend money once assured they’re getting paid back. Too much expenditure and debt load will deny an individual credit, as it signifies that they’re unable to pay. 

The Bottom Line 

The signs of a debt trap ring loud and clear, and most individuals are aware of their standing—unfortunately, it’s easier to deny it than address it. This makes the situation worse, as it causes not only unnecessary stress, but a snowball effect of even more debt—sometimes, such situations make it difficult to ever climb out. 

Getting out of debt can be a painful experience, one that will require hard work and discipline. The sooner an individual recognizes the problem, however, the sooner they can make changes. Delaying the problem will only make it worse when it finally pouches full force. 

Debt relief comes in many forms, but DebtHelpers.ca offers comprehensive solutions designed to help everyone in Canada become completely debt-free. Discover a healthy financial life by reaching out to our consultants today.