We can never repeat it enough: indebtedness creeps in. And when you realize this, very often it is already too late to raise the bar. Here are some red flags to watch out for.
As inflation gradually erodes Quebecers’ purchasing power, many of them have started going into debt to make ends meet. The following clues show beyond any doubt that you are spending too much and are on a slippery slope.
Unable to save
There are plenty of good reasons to save: first of all to put money aside for your old age, but also to be able to deal with the unexpected.
“You should save 10 to 20% of your gross income to plan for retirement,” recommends Véronique Lalonde, licensed insolvency trustee at Raymond Chabot.
She adds that it is also essential to constitute an emergency fund which will make it possible to compensate for the hard blows, a loss of job or an illness for example, or even unexpected expenses.
“One should deposit in an account separate from one’s current account the amount necessary to cover current expenses for one month, ideally three,” she recommends.
Do you live paycheck to paycheck without ever managing to save? Attention danger !
Credit card balances never go down
By paying off only the minimum amount on your credit card balances, you’ll pay hefty interest charges, and it’ll likely take you years to clear your debt. “A balance of more than 50% of one’s credit limit also negatively affects the credit file, as it sends a worrying signal to creditors. A mediocre file will also have a negative impact on the interest rates granted when applying for a mortgage loan, for example,” says Véronique Lalonde.
Watch your credit score: if it drops below 600, it’s a sign that something is wrong with your finances.
Multiply purchases with installment payments
Buy now and pay later is tempting. Moreover, the offer of this type of payment continues to multiply, even for purchases of a few tens of dollars. But by accumulating them, you risk losing track of what you owe, and several small payments end up adding up to a large amount at the end of the month. “These payment facilities also increase the temptation to buy more and go into debt,” warns Véronique Lalonde.
It also warns against purchasing leisure vehicles financed over very long periods. “It’s not uncommon to see a trailer or a recreational vehicle financed over 20 years. Not only will the property have lost a lot of value when the loan matures, but we will also have paid a lot of interest. On a loan of $25,000 to $30,000, you can expect to pay $6,000 in interest, for example,” illustrates the trustee.
Watch the budget
Never budgeting is like sailing by sight. Because while most people know how much they earn, there are many who only have a very rough idea of what they spend. And without a budget, we risk spending more than necessary. “The first thing to do is to become aware of your own reality, and how much our variable expenses, such as groceries, outings, clothes, etc., amount to. Very often, we forget little things, a stop at the convenience store for example, a coffee or a lunch taken outside the house. I recommend writing everything down for three months in order to have a clear picture of the situation,” says Véronique Lalonde.
- Prepare an exhaustive budget that is representative of your financial reality. In cash inflows, in addition to employment income, do not forget to take into account family allowances, alimony, pension plans, etc. If you are a couple, do this exercise together.
- Variable expenses are usually those where it is easier to cut (leisure, groceries, outings, clothing, etc.)
- When you’re tight on your budget, you tend to go to the grocery store more often to buy as you go. Be careful, it often costs more than going there on a weekly basis with the list for the week’s menus in hand.
- Say no to purchases with installment payments: if you can’t pay it in full, you can’t afford it. Wait until you have put the sum aside before buying the coveted property.