Part 1: Warning signs may suggest personal debt overload

Debt trouble is something that often sneaks up on people, as debt levels grow slowly and methodically.

But there are warning signs that the careful consumer can keep a close eye on to avoid becoming another casualty of rising financial pressure.

“When you start arguing about money in your family, that's a big warning sign. Top reasons why relationships end these days are money problems,” says credit counsellor Heather Cudmore.

Other warning signs include using one credit card to pay off another, making only the minimum payment on credit cards and starting to overdraw checking accounts.

“Overdraft interest at your bank is usually 21, 22 per cent. That's higher than a cash advance on a credit card,” says Cudmore.

The simplest sign of all, though, is recognizing that bills are piling up and it’s difficult to keep track of expenses.

Household debt in Canada is reaching record levels. Statistics Canada says the average Canada now owes $1.64 for every dollar owned. Twenty years ago, that figure stood at 66 cents.

Credit counsellors say January is one of their busiest months, as consumers feel a spending hangover after dishing out over Christmas.

“Business always picks up in January,” says Cudmore.

“We start getting more phone calls, more requests for help.”

And with Canadians’ personal debt rising to record levels, every January seems busier than the last.


Part 2: Additional jobs, professional assistance can aid in reducing debt

For many Canadians, mountains of debt present a difficult burden.

Often, people can find debt piling up so quickly that it becomes overwhelming, even though there are some simple steps that could be taken to help reduce the debt load.

For some people, developing and sticking to a budget is all it takes to slowly dig out of debt.

But for others, credit counsellors and other professionals are necessary to help sort out the financial picture and explain what should be done.

“We will look at your finances with you and try to develop a budget,” says credit counsellor Heather Cudmore.

Sometimes, people in debt try to take on a second job to help improve their cash flow.

But in some cases, especially when it comes to students, finding a job can be even more daunting than piles of debt.

Magda Beda is a business student and photographer. When she needed to find a way to keep pace with her $6,000-a-year tuition bill, she turned to uIntuition, a student-run service helping students looking for work connect with employers looking to temporarily hire young employees.

“I signed up about half a year ago, and since then I’ve probably made upwards of $5,000,” Beda tells CTV.

Not everyone struggling with debt gives it as much thought as Beda. A poll from Edward Jones Investments shows that one-third of people surveyed say they only keep track of fixed expenses like mortgages and car payments, while another third don’t keep track of their expenses at all.

Cudmore says that’s another way credit counsellors can help those needing a bit of financial guidance. They can also help settle debts.

“You can pay us and we pay fees to the creditors,” says Cudmore.

But if settling accounts isn’t desirable, consolidating several smaller loans into one big loan is another idea to consider.

“By taking a high-interest credit card and rolling it into a lower-interest line of credit, more of your payments each month are going to principle,” says bankruptcy trustee Doug Hoyes.

In either case, though, consolidating or settling debts does follow your financial profile around, as your credit rating will be lowered to just one step shy of risking repossession.


Part 3: Bankruptcy a last resort but not the end of the world, experts say

For many people, declaring bankruptcy is an absolute last resort when dealing with debt.

It’s thought of as a tool for big companies, not one that can be used by the average person.

But while declaring bankruptcy is something that should be done with caution, as it sends credit ratings plummeting, financial experts say it’s not something that should be avoided in all cases.

“We don’t want to talk about it up front if it’s not necessary, because it’s certainly going to harm your credit,” says bankruptcy trustee Doug Hoyes.

“You risk losing things like tax refunds. And the more money you make, the more you’ve got to pay.”

Under the federal Bankruptcy and Insolvency Act, anyone owing $1,000 or more and without the assets to pay off those debts can declare bankruptcy.

Due to the drawbacks of doing so, though, those who file for bankruptcy generally have far greater debts.

“The average debt load is going to be $30,000 or $40,000 of credit cards, maybe a car loan, and a house mortgage payment in there,” says bankruptcy trustee Susan Taves of BDO Canada.

Filing for bankruptcy involves turning over complete control of financial arrangements to a bankruptcy trustee, who then sells off all the bankrupt individual’s assets, sending their credit rating down to R9 in the process.

“Of all the people who call us, only one in 10 ends up filing bankruptcy,” says Hoyes.

“The rest of them we can either show other options or help them with a consumer proposal.”

Consumer proposals involve paying back a portion of what is owed to creditors over time, and not losing control of any assets, with the credit rating only falling to R7 in the process.

“The interest clock stops. It may take you longer to pay it back, but you may in fact be paying less,” says financial expert Pattie Lovett-Reid.

Up to $250,000 in debt can be claimed in a consumer proposal. Hoyes says the recent raising of that limit from $75,000 has resulted in more customers choosing consumer proposals over bankruptcy.

“We’re doing more consumer proposals than we’re doing bankruptcies, which certainly wasn’t the case a few years ago,” he tells CTV.

That decrease in bankruptcies bucks the trend over the past quarter-century, during which the number of Canadians filing for bankruptcy rose significantly.

“Twenty-five years ago, there were maybe 100,000 filings in Canada. Now it’s been a steady climb for the last 20 years, to 140,000 filings a year in Canada,” says Taves.

Although Taves has handled high-profile local bankruptcy cases like Imagine Adoption and Pigeon King, she says it doesn’t lead her to think poorly of Waterloo Region’s economy.

“We have so many entrepreneurs, who are so active in the marketplace with positive economic activity,” she said.

“There’s always some pain out there, though.”