You may still be doing everything “right”: being mindful of your spending, your budget and cutting costs where you can. Yet, despite your effort to avoid debt at all costs, your bank account always runs dry by the end of your pay period and you are continually turning to debt to make ends meet (or worse- you are turning to debt to pay other debt payments).
Experience from our clients reveals that, in many cases, debt is not taken on in the course of financial irresponsibility. Rather, debt to fills the gaps because their incomes have remained flat over the years or are not sufficient to begin with. This type of lifestyle quickly creates a debt cycle that gets harder to stop and avoid debt at all costs as time goes on.
“People can often earn enough to qualify for credit on paper, but when it comes to living their lives and actually being able to repay it when faced with the rising cost of living, it’s impossible to keep up, despite best intentions,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“Given the high cost of housing, food and energy, there is a huge chunk taken out of the paycheque right away; that leaves little for debt payments. Those that have dipped into credit to cover those extra costs soon find that they can’t make their payments. They are even using more debt to pay other debt payments, which is a recipe for disaster,” says Schwartz.
Are you at risk of getting swept up in a debt cycle? Here is how to avoid debt at all costs.
Don’t feel defeated
The problem with using debt to make ends meet is that most people tell themselves that “it’s just this once” or “I’ll catch up later.” Unfortunately, as the debt cycle starts to churn, control is quickly lost and intentions are swept away.
In addition to adding to your debt load every month, you are contributing to your feeling of helplessness, stress and sadness every month and ultimately,you’ve got to resort to your last resort- each and every time. Stop this problem before it starts.
Be smart with your credit
Just because you are eligible for a credit product doesn’t mean that you should take it out. It’s a good idea to have a credit card on hand for emergencies, assuming that you can pay the balance off every month, but other than that adhere to a cash lifestyle. The only definite way to avoid a debt problem is not to have debt.
When your income doesn’t keep up with your budget
The common advice to staying out of debt trouble is to spend within your means. But what if you are spending within your conservative budget, but your cost of living expenses exceed your income?
Sometime stopping the debt cycle means making some lifestyle changes. Break down each of your necessities to see how you can reduce your costs. Housing too expensive? Move to a less expensive apartment, get a roommate or sell your home and downsize. Food costs too much? Alter your diet and your shopping habits. Feeling the pinch at the pump? Sell your car and use that money to pay down debt.
Say no to high, very high, interest loans
Pay day loans leverage that stress and guilt that you feel by not making ends meet and are marketed as a temporary solution. However, the substantial interest that you’ll pay is completely crushing. More often than not, that “temporary solution” is an extra debt burden. Take the time to find alternative solutions!
Don’t forget savings
If possible, set your budget up to reflect savings. It might seem like you don’t have any cash, but remember every little bit counts. That way, when you’re not able to make payments for whatever reason, you can turn to savings rather than debt.