Debt addiction is a serious problem among Canadians. These are the signs to look out for and how to begin your recovery.

2020-10-07   minute read

Tanya Reynolds

Debt Solutions

Lifestyle Debt

Millions of Canadians are struggling with debt addiction — a problem that has worsened over more than a decade of historically low interest rates and a growing culture of debt normalization. With the ongoing financial challenges of the COVID-19 pandemic, and with interest rates plunging yet again, it appears the issue will get worse before it gets better for many households.

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What is debt addiction?

Debt addiction is not the same as a shopping addiction, though the two issues often go hand in hand. A shopping addiction usually involves trying to fill a personal void with material possessions. Debt addiction is about using borrowed money to finance a lifestyle (properties, vacations, material goods, leisure experiences) you could otherwise not afford.

Often when one form of debt is no longer usable (reached credit limit, loan funds run out, etc.) an individual addicted to debt will immediately apply for new accounts to keep the flow of money going. Lenders see these people as a progressively higher lending risk, so each new account usually comes with higher interest rates and stricter repayment terms.

Those with debt addictions will initially strive to keep minimum payments up to date to avoid any accounts going into collections. However, as the issue becomes more severe, we commonly see people using debt to repay debt and ultimately going insolvent.

Are you addicted to debt?

Here are some telling signs that you may be forming a debt addiction:

  1. The thought of not having a credit card leaves you sleepless at night
  2. You’re constantly applying for new cards or loans
  3. You use credit for purchases knowing you won’t have the cash to pay it off
  4. You keep your debt a secret from family and friends
  5. You avoid looking at your banking and credit statements for fear of discovering how bad the situation has become

How to take control of debt addiction:

First, you need to acknowledge there’s a problem. Even experiencing one of the signs above could indicate you need to re-think your relationship with debt. Next, you need to change your relationship with your debt and likely with credit in general.

Make a list of your current debt and balances owing – Check all your online banking accounts for current balances. Also, pull a free credit report from Equifax and TransUnion to make sure you’ve included every debt on your ledger.

Stop using credit altogether – Cut up your credit cards, cancel your overdraft, and freeze any lines of credit you have. Only use cash going forward. This may require creating or revising your budget to realign your new lifestyle with your true income and financial obligations.

Tackle one debt at time – Your budget also needs to include the minimum payments on all your debts. Choose either the debt with the highest interest rate or lowest balance and budget an extra amount to pay down the principal. Keep doing that until you eventually pay each debt off.  

Be realistic – You need to set achievable goals to avoid getting discouraged. If you have already adjusted your spending with no further room to take further steps, it may be time to look for outside support and assistance.

Who can you turn to?

You’re not alone. There are many options to support and assist in getting your debt under control. Some options to consider include:

Talking to your financial institution — There may be different financing options available to you. For example, a consolidation loan may allow you to combine all your debt into one payment at a lower interest rate.

Contact a credit counsellor or your creditors directly — They may offer options to make payment arrangements or re-negotiate your balance or interest rate.

Speak with a Licensed Insolvency Trustee (LIT) —  LITs offer Free Confidential Consultations to assess your financial situation and identify opportunities for a financial fresh start. They can advise you of all your options, including a government regulated Consumer Proposal and Bankruptcy, and will provide an unbiased opinion on the best solution for you.

Don’t wait. The sooner you can confront your debt addiction and change your habits, the sooner you can get the relief you need.