What Makes Personal Debt Relief Necessary

Financial debt is often seen as a bad thing, but the truth is that in moderation, it is perfectly normal. Credit card bills, mortgage payments, and taxes owed are a few examples of debt that are common throughout society.

Debt can even serve as the means by which a person can secure a more stable future. Business and student loans fall into this category. These are types of debt that grow in value and allow a person to generate income for the long term.

That being said, debt can also be detrimental. When a person incurs alarmingly high levels of debt, they can find themself in a difficult situation that leads to financial troubles and an inability to move forward.

Obviously, these are not ideal. To help prevent debt from becoming a debilitating issue, here are a few situations that necessitate swift and appropriate action.

1. A lack of knowledge on the financial obligations incurred

As stated earlier, many people will have several debts that need to be addressed responsibly. This means that a thorough understanding of the nature of these debts is absolutely critical. A person must have full knowledge of the exact amounts that are owed, the deadlines of payments, and the terms that underlie each financial obligation.

Without this knowledge, a person would have no realistic chance of managing their finances effectively. If this remains unaddressed for too long, it can lead to a precarious situation where any sudden shift in their financial condition could lead to a downward spiral of ever-increasing debt.

2. Debt payments comprise more than 15 percent of total income

As a general rule of thumb, monthly debt payments should amount to no more than 15 percent of a person’s monthly income. This figure, however, does not include payments on mortgages.

Most Canadians have a debt-to-income ratio somewhere between 14 to 15 percent. Anything above this level makes it difficult for a person to afford other necessities and meet their financial goals. As such, a debt-to-income ratio approaching or exceeding 20 percent is dangerously above the acceptable range.

3. A new debt was incurred to cover basic living expenses

If a person has to take on new debt, such as an advance on their credit card, to cover basic living expenses, then it’s a clear sign that they are setting themself up for future financial difficulties. This is because this type of debt generates no value. In fact, the applicable interest rates will cause a person to accumulate further debt that can be extremely challenging to pay off.

This type of situation usually arises when an individual is living beyond their means. Out of a person’s regular income, certain percentages have to be allocated for their basic needs, savings, emergency funding, and happiness. At the same time, debt should be kept separate from these allocations. Having to accrue more debt to simply afford any of the aforementioned necessities is a clear sign that something has to change.

Conclusion

There are other significant warning signs as well. A reduction in a person’s credit limit, a bank’s refusal to consolidate a person’s debt, and general anxiety towards financial management could all signify a problem.

Remember to keep an eye out for these signals and take action as necessary. Debt, as stated before, can be incapacitating, but it is not impossible to overcome.

DebtHelpers.ca offers individualized assistance for Canadians seeking personal debt relief. Interested parties can visit the website contact page to schedule a free consultation today.