There's a lineup of usual suspects when it comes to the culprits for our debt: Illness, unemployment and marital breakdown. But oftentimes the biggest reason we find ourselves with money woes isn't because of some external force or major life event - it's simple mismanagement.
"Overspending is a big problem for Canadians, and there is such a push to spend all the time that many lose sight of their goals and often find themselves in over their heads," says Laurie Campbell, CEO of Credit Canada Debt Solutions.
A few years back, Laurie and her team created their blog, For the Love of Money, to help clients and the general public be savvier with their spending. Here, she discusses some of their readers' biggest questions and concerns and offers advice on tackling debt and becoming financially independent.
Tell us about For the Love of Money...when and why was the site started?
Credit Canada started the site around four years ago to provide savvy financial literacy information to our clients, the public and media. We felt there was a need to give a voice to our agency on critical matters of money management and financial issues and to also have an opportunity to weigh in on the opinions of others.
What are the most common questions or concerns readers come to you with?
Debt is the biggest issue that readers have along with how to manage their money better. There are also some very astute readers who provide their own insight as to how they manage their money or have gotten themselves out of debt.
What financial advice do you find yourself offering over and over again?
The biggest advice we seem to give is how to stay out of debt and live within your means. It is something that can never be overstated, as so many struggle to budget and manage their debt effectively.
Is there such a thing as good debt anymore? If so, what is it?
I do not like the term "good debt." There is some necessary debt, such as a mortgage and a student loan. For some this can be seen as good debt; however, I consider it necessary debt, which should be relinquished as soon as possible. Far too many people are borrowing against their home equity to finance their lifestyle. This is concerning, as it could mean they will never be mortgage free.
What advice can you offer on managing any debt - large or small - in a way that's healthy and logical?
Simplify your life, simplify your spending. Create a plan in writing. Look at your spending patterns, look at a budget and write down goals. Ensure you actually have a plan of action in writing, not just in your head and check your progress every month. Like losing weight, shedding debt is a lifestyle decision, meaning once you shed the debt, do not go back to your old habits. If you can't manage on your own, Credit Canada offers a debt consolidation program where we will develop a repayment plan based on your budget and work with your creditors to get interest relief so you can finally pay down the debt.
Beyond the strain on a bank account, what are the other side effects of debt on an individual or family?
The biggest reason for relationship problems is money problems. So debt can have a huge strain on a relationship; it erodes trust, communication and working together if people are not on the same page. Debt can also cause severe stress, sleep problems and problems at work due to stress and health issues. Addiction problems can also increase as people try to escape their debt problems.
When should someone enlist help for managing his debt? What advice do you have for finding debt settlement resources that are legitimate?
If people feel they are struggling or just want to get a better idea on how to manage their money better, they should seek the services of a not-for-profit, charitable credit counseling service like Credit Canada. The counseling is usually free and confidential. This allows them to get a second opinion as to how to manage better and what strategies they can put in place for a better financial future.
We strongly advise to not use any debt settlement services. What they offer is not legislated at all, and we have seen far too many people lose sometimes thousands of dollars to these companies. The only way to offer a fraction of what you owe back to a creditor is through a consumer proposal, which is a legislated process through the bankruptcy and insolvency act under the federal government. Any other process is not licensed or legislated. The government of Ontario has been working on Debt Settlement legislation to stop unruly practices of these companies, which we are hopeful will be enacted in the fall of 2014.
What are some of the most straightforward ways individuals or families can pinch pennies in their daily life?
There are so many ways people can save from taking their lunch to work, public transit, how they buy food and clothes (no frills is just cheaper than Loblaw's, hands down), to reducing energy costs, borrowing from the library, bundling services, etc. Our site, For the Love of Money, looks at these issues in detail; we also circulate a money management and budgeting booklet that looks at these as well.
What advice do you have on creating a budget you'll actually stick to?
First look at what you are currently doing. Track your expenses for a few months. I don't suggest changing anything during those couple of months; you really want to know how you are actually spending your money now. A lot of people who come to see us have no idea how they spend their money, so that is their first exercise.
Credit Canada provides a free budget tracker booklet to the public for that purpose.
Once you know how you are spending your money, you can look at ways to cut back. For example, it is sometimes a huge awakening for people to see that they are spending upwards of $10 a day on lunch. It makes it easier to make a change such as bringing your lunch when you can see the huge savings. That money should be reallocated so they can see the benefit (e.g., savings, to debt or a trip away, etc.). The idea is to make it a lifestyle change so that you do not go back to your bad habits. That is the only way people will stick to it. They also have to see the benefit or what good will come out of it...how they will feel being debt free, how saving more can mean earlier retirement or how not buying a café latte every day can be put toward a vacation. By realizing the benefit and seeing progress toward their goal, they have a greater chance of sticking to their budget.