What are the warning signs of over-indebtedness?

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Too much debt can threaten your future and destroy your peace of mind. Here are five warning signs to watch for:

1. You are spending more than 20% of your after-tax earnings on debt. Total up all you owe, excluding your mortgage, e.g. student loans, car payments, and credit card bills. Now total up how much of your after-tax income is dedicated to servicing this debt.
2. You are paying for daily essentials with credit instead of cash. Consequently, you are close to the credit limits on your cards. Credit cards charge notoriously high interest rates, which is exasperated by compounding when credit cards are not paid off monthly. This can also increase your actual gross cost of goods purchased.
3. You are deferring important expenditures. You may need maintenance work (on your car, your home, and your teeth) as you struggle to get by.
4. You seem to spend your paycheque the day you get it. This may be a sign that you’re also over spending, an activity that leads to debt.
5. You are not differentiating between ‘good’ versus ‘bad’ debt. Good debt is money borrowed for productive purposes to help generate wealth over time (such as an education, build a small business, or purchase real estate). Fancy cars, expensive vacations, restaurant meals, and over-indulgent gift giving may indicate a lifestyle that for many do not justify the average household’s paycheque.

If you are in serious debt, consult a debt counselor who will arrange a repayment schedule with your creditors.

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