What’s the Difference Between Being in Debt and Financial Crisis?
Virtually every adult Canadian is in debt. That is not necessarily a bad thing. We have debt for mortgages, cars, student loans, etc. We would not have our house without the mortgage, the car without the loan or the education without the student loan. It could be argued that there is a benefit attached to the debt. These are the fixed costs we budget for, among others.
Now, add to this debt: a line of credit and perhaps a couple of credit cards (they average four per adult Canadian). This is still not necessarily bad. A line of credit may be used for a home renovation, increasing the value of the house. Credit cards are convenient and as long as we pay them off each month, are not an issue.
Debt, but not crisis.
People’s debt can sometimes arise out of unforeseen circumstances. An example: the death of a family member in Europe and you and your spouse must fly there, stay in a hotel, incur travelling expenses and perhaps even pay for part of the funeral. You use the line of credit or credit cards for these expenses with every intention of budgeting tightly and paying off the debt. You roll up your sleeves, work hard and drastically modify your spending habits until the debt is retired. As long as you have your jobs and your health, this plan will work over time.
Still not crisis.
Now, complicate the above scenario with one of you losing your job. The carefully balanced budget is now deeply in the red. Bills arrive and there are no funds with which to pay. You use your line of credit to pay them. You believe you are using this credit very temporarily until you find another job. You are now tipping towards Financial Crisis. Each month the bills are paid using credit until your line of credit is maxed and you are loading up on the credit cards. The stress is almost unbearable. You cannot sleep. Your debt is now affecting your health.
You are now in Financial Crisis
You have not wanted to face this ugly reality but you must now assess your options. You look at selling your house but find, with the drop in values over the past years, there is not enough equity to even cover paying off the mortgage, net of real estate fees. Likewise, not enough equity to qualify for a second mortgage or consolidation loan. You consider, and quickly dismiss, borrowing from family or friends. You wonder about Bankruptcy and if you will lose your house and possessions. I have had clients that tell me that they actually considered suicide. (Two of whom actually attempted prior to meeting me). It is time to book a free consultation with a professional debt consultant.
A debt consultant will review every option that is available, given your specific set of circumstances.
About the author: Chris Grew is a Debt Consultant serving clients from Ladysmith south, on Vancouver Island and the Gulf Islands.
