How To Know If You Have A Debt Problem?

Many people make far more money than they really need to live. However, somewhere between lifestyle inflation and the requirement to make large minimum payments on debt balances each month, many who earn a sizable income are struggling to make ends meet and are living paycheck to paycheck. Debt is an issue that those in all income brackets must contend with. Regardless of your income level, if you are struggling to make ends meet and have account balances that you cannot pay off, you may have a debt problem.

Signs of a Debt Problem

So many Canadians have put pen to paper in recent months to develop a budget detailing their personal monthly income and monthly spending. For many, on paper it appears that there should be plenty of money left over for entertainment and treating yourself to those extra luxuries in life. However, when it comes to actually living within that budget, it can be very difficult to do. In fact, you may find yourself with a budget shortfall each month.

  • If you can’t pay your credit card in full each month, you may have a debt problem. Using your credit card to pay for groceries and gas is fair since you can earn points or other benefits but it must be paid off each month.
  • If your credit card balances seem to increase from month to month, this is another sign that you may have a problem with debt. Everything from basic overspending on a regular basis to the high cost of vices and bad habits like smoking, eating at fast food restaurants and more may be contributing to your issue with debt.
  • If you rely on your line of credit to cover spending, you probably have a debt problem.
  • If you rely on a bonus or other non regular earnings (i.e. bonuses) to cover bills, you essentially live on borrowed money and are at risk.
Debt tends to be a negative word towards finances. However, when you take a loan for a car or a house, you are essentially increasing your debt and in a sense all home owners are in debt until it’s all paid for. What is important is to keep your debt under control. I would stay there are 4 emotional steps for financial debt:
  1. Denial – I’ll be fine next month. It just happened because of X and Y but it becomes a regular pattern.
  2. Lifestyle Inflation – The realization that you have been spending more than you can really afford to.
  3. Debt – You really feel the pressure of your debt at this point and you are in serious need of help.
  4. Bankruptcy - The point of no return. You ignored the previous steps and did not take action.

Related: How To Review Your Financial Plan

How to Get Out of Debt

Once you realize you have a problem with debt, you have taken the first step toward getting out of debt. The next step, however, is taking steps to minimize spending. You can review your budget item by item to determine areas where you can reduce spending. You can also consider eliminating bad habits that cost you money each month, such as smoking, from your life. Further, take steps to eliminate lifestyle inflation from your life. When you get your next raise, use that extra money to pay off a greater amount of debt rather than to increase your lifestyle.

Related: Define Your Emergency Fund Road Map

When Debt is More Than You Can Handle

For some, making significant changes in spending, eliminating expensive vices from your life and avoiding lifestyle inflation can bring overspending under control. These efforts may be enough to help you reduce your debt balances. However, if you are like others who are in debt in Canada, more significant debt solutions are necessary. Debt consolidation loans are one option to consider. These can establish your debt balances on a regular payment plan with a lower interest rate.

Debt balances can quickly spiral out of control, so it is best to get your debt situation under control as soon as possible. You can learn more about Canadian debt consolidation loans by visiting With your own efforts and the added benefit of a debt consolidation loan, you may be able to regain control of your finances and reduce your account balances.

Bankruptcy is the last resort to a debt problem. The signs of overspending and debt accumulation are usually there but they are subtle and creeps up on you. It’s your pride that will suffer most and you make the realization that you are living above your mean.

Readers: Have you had to get out of debt? How did you do it?

This guest post was written by

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5 Responses to "How To Know If You Have A Debt Problem?"

  1. know more says:

    The Passive Income Earner explains how to know if you have a debt problem

  2. red says:

    I have no credit card. How Can I know my debt problem

    • The Passive Income Earner says:

      If you don’t have credit cards then it means you are paying cash. If you don’t have the money, you sure can’t spend it. To really know if you have a debt problem, you have to look at your debt (if any) and evaluate if you really should have it. For example, do you have a loan because you bought a TV and so forth.

  3. To have read the 4 emotional steps for financial debt is important. I’ll take note of those and check if my daughter or even I feel it. To be in debt is a very alarming situation since everything is budgeted in our family.

    • The Passive Income Earner says:

      Thanks for your comments. It’s actually quite interesting the emotional steps that applies to finance. I actually went through a few of them a while back and quickly adjusted realizing I was just kidding myself.

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