Millions of Canadians ask the same question every year: How did I end up in so much debt? Living with debt and trying to get out from under it can be a huge struggle. So if it isn’t too late, find out how you can keep your finances on track by avoiding these common financial mistakes. Read on to find out what financial mistakes millions of Canadians are guilty of, how they get you stuck in debt, and how to avoid them altogether.
Living with Debt
Having debt – especially a big debt – can be stressful. If you have unsecured consumer debt, it can be even worse. It’s hurting your credit, hurting your chances of getting a new job, and preventing from using your actual income on anything other your debt. It’s like a dark cloud that just looms over you. This year especially, more and more Canadians are finding themselves in the claws of debt, unable to get out. If this is your situation, you know how tough it can be.
Once you do climb out of debt however, it’ll be extra important to stay out of it. Falling into debt again can set you back years – even decades! Here are the top financial mistakes we see the average Canadian consumer make every single day that lead to one road only: the road of debt!
Using Your Credit Card as a Lender
Your credit card is not there to loan you money when you’re strapped for cash. In fact, if this is your situation, throw that card away! Using your credit card to borrow funds you don’t have is going to start a cycle you will struggle to get away from. This is mainly because credit cards carry a huge interest rate and interest is piled on by the day. If you are tight on funds, you are always better off taking out a personal loan instead. Once you are in the cycle of debt with a credit card, it will be very tough to break free without the help of a debt consolidation loan.
A credit card should actually only be used to build up your credit history in a positive way. That means, you use it, pay it, and your credit history proves to other lenders and employers that you are trustworthy and reliable. To avoid getting into troublesome debt with your credit card, don’t use it unless you know you can afford to pay the bill.
Buying a Home that is Too Expensive
We have heard it a million times over: a home is an investment. Yes, that’s true. But it has to be an investment you can afford. Otherwise, it is going to become the reason you fall into debt. If your home eats up too much of your monthly income, you won’t have enough to make ends meet and may be tempted to rack up essential charges on your credit card. Many new homeowners stick to the 20% rule which states a home should cost no more than 20% of your gross annual income.
However, costs for managing your home should be included in that 20%, as well. Many people opt for a home with mortgage payments that are valued at 20% of their gross income, which is going to cause problems down the line. From insurance to utility bills to the mortgage, everything should come in at no more than 20% of your gross annual income.
Overspending on a Vehicle
Owning a luxury car is a dream for many Canadians, but the reality is that a car is a depreciating asset that loses its value the second you drive off the lot. Unlike a home, a car is not an investment. Unless you have the excess funds to purchase the car, don’t spend too much money on your vehicle. It’s money you will never see again and should you fall into debt troubles, you can’t rely on it for very much help. It may even be worth less than what you still owe on it.
A luxury vehicle is just that – a luxury! It is not a smart investment for the average Canadian family. In fact, it isn’t an investment at all.
Not Having a Contingency Fund
If you haven’t saved for a rainy day, you will eventually find yourself in debt if there is an emergency. This year is the perfect example. Millions of Canadians unexpectedly lost their jobs when the Covid crisis hit and some are still out of work even a whole year later. This pandemic has been devastating to so many families. Being out of work with no means to pay your bills means one of two things: losing your home, or incurring even more debt simply to keep your head above water. This isn’t a sustainable plan.
The best way to avoid ever falling into debt is to have a contingency fund. Your fund should include a minimum of six months-worth of expenses. Get out your spreadsheet and calculate what it costs you to pay all of your bills each month. If you don’t have a contingency fund, an unexpected job loss or illness can catapult you into debt very quickly.
You Are Investing Poorly
Investing is a great way to earn money but you have to be smart about investing. Otherwise, you can make huge financial mistakes that will cost you big. Risky investments are suitable for those who don’t need immediate access to the funds. In the long term, reliable stocks will grow but in the short-term, they may go down significantly. It isn’t wise to invest money you need now in a risky venture.
You should also diversify your investments so you can limit your risk of loss – especially when there is an economic downfall. Before you commit to investing your money, meet with a financial expert who can help guide and educate you first. It’s always best. To research and understand what you’re getting into before you actually tie up your funds.
You Don’t Budget
If you don’t have a budget plan or at least a list of your outgoing and incoming funds each month, you are very likely to overspend and wind up in debt. You should always keep track of your spending habits. In fact, it’s highly recommended that you separate your expenditures into categories like: home, utilities, entertainment, clothing, extras, foods, etc. This will allow you to see where you are spending the most money and where you are overspending money. Once you look at your expenses on paper, you may realize that you can cut back a few hundred dollars each month really easily and slip it into your savings account instead. A detailed budget can stop you from getting into debt and even help you maintain discipline for your savings accounts.
You Didn’t Update Your Budget
As your life changes, your income grows, your expenses grow, and even your family can grow. The budget you set up five years ago may no longer work for your needs. Sticking to an old budget that doesn’t adequately account for the life you have is a sure-fire way to end up overspending and getting into debt troubles. It is crucial that your budget always remains suited to your lifestyle. It is impossible to stick to a budget that doesn’t account for your current lifestyle. For example, if you used to save $500 a month before having kids and now can only save $250 per month, you have to update your budget accordingly.
Otherwise, you may still add that $500 to your savings, come up short at the end of the month, and end up dipping into that savings to avoid going into debt. Once that account is high and dry, you will go into debt if you don’t update your budget according to your life.
You Aren’t Financially Savvy
This is a reality but it isn’t an excuse. The world of finance can be complicated and it’s normal not to understand everything – especially when you’re just starting out on your own. You may not have known much about finances in the earlier part of your life, but it is your responsibility now to learn about it. Learning about how to smart financial decisions like purchasing and investing can help you stay out of debt. Millions of Canadians end uu65t66t6yu in debt when they are uninformed.
To make sure you’re in-the-know, meet with a financial advisor, like the experts at BHM Financial. Understanding the complex world of finances can help you get out of debt and avoid getting back into debt. Understanding how to make savvy financial choices for yourself and your family is the best way to keep yourself debt-free.
You Aren’t Paying Your Debt Off Efficiently
If you owe money to several creditors, including credit card companies, and you are simply making your minimum payments, you will never get out of debt. In fact, you are likely getting into more and more debt each day thanks to soaring interest rates. When it comes to credit card debt or owing to more than a half dozen companies, the biggest financial mistake you can make is to simply try and pay it off.
Instead, you should be getting a consolidation loan. This is the only way to pay off that kind of debt. Paying the minimum and incurring interest by the day will only get you stuck in a cycle of debt you won’t be able to escape. This is a common financial mistake that millions of Canadians make and it can cost you big in the long run. Instead, consolidating your debt will allow you to reduce your overall interest, minimize your payments, and make it possible for you to finally get out from under your debt load.
Using Your Savings for Non-Emergencies
Not having a contingency fund is a big financial mistake, but so is having one and not using it wisely. Your contingency fund may not have been used in a decade but if you use it on something frivolous and deplete your contingency fund, you can be sure an emergency will happen right then and there. When you’re strapped for cash and have few options, you are very likely to end up in debt. It would be better t borrow the cash you want and pay it off slowly than to deplete your savings for anything those funds aren’t intended for.
If you’ve taken the time to save for your contingency fund, be sure to use it wisely. An emergency will happen at some point and when it does, you may be able to save yourself years’ worth of debt by having something to fall back on. Once you’ve made the effort to save the money, be sure to keep it there.
How to Recover from Financial Mistakes
If you have made some of the above financial mistakes in your lifetime, don’t worry. You’re not the only one. Unfortunately, most of these financial mistakes are all too common. You can’t go back and change the past but you can certainly take hold of your future and get your finances back under control – your control!
Here are the first things you should do once you realize you have made a few financial blunders and may need a hand getting your finances back in order:
Seek Credit Consolidation
The first step to getting a hold of debt is to consolidate your debts. This can help reduce your overall payments by cutting your accumulated interest rates. At BHM Financial, we can help you consolidate your debts and work with you to create a debt repayment plan that will actually work for your lifestyle. Once you are in debt, the most important thing to do is get out of it as quickly as possible, while still managing to keep enough money in your pocket for your day-to-day expenses.
Understand Your Options
Before you go ahead and decide on bankruptcy or credit counselling services, make sure you fully understand all of the options available to you first. Just when you think you’re out of luck, BHM Financial may be able to help you. Our expert financial advisors can help by explaining all of your options to you in laymen’s terms. They can help choose the right product for your needs and help you work out a payment plan that works.
In addition, you can count on our BHM Financial experts to help you stay out of debt by helping you create a long-term budget plan that makes sense. They can also help you make savvier financial decisions so you don’t find yourself overwhelmed by insurmountable debt again in the future.
Make a Plan
Once you have found the right solution for your financial troubles, you have to make a plan and above all, stick with it! Making a detailed budget for yourself is key to keeping you on track. It will ensure you recover from your past financial mistakes quicker than you may think. Your plan will help you manage your debt and stay out of debt. The important thing is to stick o the plan you create with the help of our financial experts.
Be Proactive
Too many consumers wait for the debts problem to become practically unmanageable before they seek help. This is a stressful way to live. Instead of waiting for your finances to get out of hand completely, schedule a consultation with us sooner rather than later. Waiting for your debt troubles to fix themselves won’t happen. Instead, take matters into your own hands and seek the credit help you need to solve your financial problems today.
There is no shame in seeking debt help. You are not alone in the world of debt, especially not in Canada. Millions of Canadians find themselves suffering from debt every single year. While debt can sometimes be avoided, it is often unavoidable for many. The only financial mistake you can make that’s worse than using credit cards to survive is not getting the right help as soon as possible. The sooner you get your debts consolidated and paid off, the sooner you can return to living your best life.
Why Should I Choose BHM Financial?
There are tons of lenders out there, so why should you choose BHM Financial? Aside from our knowledgeable and helpful staff, BHM Financial is a direct lender. That means we don’t need third party approval for any loans we give. We review and hand out loans directly to your clients. This gives us the freedom to accept bad credit profiles for loans. If you can’t secure a loan at a traditional bank because of your poor credit history, we can help. We can review and approve your cash loan in one single business day. You can apply this morning and walk away with your cash in-hand this afternoon!
Plus, our staff is unparalleled. Not only will they help you manage your debt, but they go above and beyond to help you understand finances better so you can continue to lead a debt-free life moving forward. The service BHM Financial offers – whether you’re guilty of some of these financial mistakes or not – is always top quality. Our goal is to help you get your financial future back into your hands so you can get on the path to financial freedom.
Give us a call today or apply for your bad credit loan online to see just how quick and easy it can be to say goodbye to your debt for good!