Most people don’t realize how big debt can become even when they think they’re being responsible.
Debt usually starts small, with a few reasonable expenses put on credit – but it can grow quickly from there.
If you’re a recent high school graduate, you probably just got a credit card.
If you’re heading to university or college, you likely have student debt. In Ontario, the average student graduates with $27,000 in debt that will take them 10 years to pay off.
As your debt grows, debt payments take a larger portion of your pay every month. So far no problem, as long as your debt is under control.
After college, you’re ready for the working world. You may need to finance a car or relocate, which means more debt.
Your income might be higher but your monthly debt payments just got bigger too.
Make a few partial payments and your debts will grow.
If you meet someone and get married your household income might increase but so may your family debts. In fact 43% of you will enter into your marriage ALREADY in debt.
When it’s time for you to buy a home, you’ll need to take out a mortgage. Hopefully you have a good down payment since 9 out of 10 insolvent homeowners have a high ratio mortgage.
Having kids means your living expenses will increase. The average cost of raising a child to the age of 18 is about $670,000.
You now have a mortgage, a car loan and maybe some credit card debt. If you or your spouse lose your job, your ability to keep up with your payments stops.
What if you divorce? Running two households instead of one is much more costly. That’s why 1 in 5 bankrupts list divorce as a cause of their insolvency.
Will you be able to pay off your debt before you retire? Right now, almost half of all retirees are still in debt.
To avoid the common pitfalls of debt, recognize what you’re up against and come up with plan so the debt doesn’t pile up quite so fast.
Build some savings to weather any financial hiccups.
If you’re already in too deep, ask for help from a reputable advisor, like a Licensed Insolvency Trustee.
The key to financial strength is to take control and manage each step along the way.
Understanding the impact of your financial choices is an important first step.