We are all about partnerships at Momentum. We know that we cannot do everything and that many of the people in our community have knowledge and expertise that we can learn from. It is in the spirit of learning from our community members that we present the following blog post from guest blogger Douglas Hoyes, Founder & Trustee of Hoyes, Michalos & Associates.
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The problem with New Year’s resolutions is that while over half of us make resolutions each year, only around 1 in 10 will keep those goals. Rather than making one big resolution like ‘I want to get out of debt’, take a different approach. Below are 7 negative habits, each of which can lead to debt problems. Why not take a look at this list and make 2016 the year you erase any of your bad debt habits.
- Paying the minimum. Paying only the minimum balance on credit card debt means that you will pay a lot of interest and stay in debt for much longer than you should. Almost all of your minimum balance is used just to cover financing costs. Very little goes towards the principal. So instead, put as much as you can against any credit card or other debt you have. Even $20 a week extra can make a huge difference in the long run. And paying weekly instead of monthly is also a good habit if you can, because doing that will also lower your interest costs.
- Using credit like cash. At Hoyes Michalos we like to say that credit cards are a payment method, but should not be used for borrowing. If you are spending more than you make, it’s time to balance your budget so your debt doesn’t continue to grow.
- Ignoring your month end balance. This is like the ostrich putting his head in the sand. If you only look at your monthly payment and say to yourself ‘that’s ok, I can afford that’ you are not seeing the big picture. A good habit to get into is to keep a list of all the creditors you owe and every month write down how much you owe them in total. Those balances should be going down, not up, every month.
- Not looking ahead. Life happens and it’s not always positive. You might think it’s ok to overextend yourself a little right now. After all, you’ve got a job and can pay back what you are borrowing over the next little while, right? But what happens if you or your spouse lose your job? Get sick? Or what if your car breaks down and you need to fix it? Debt today prevents you from being able to absorb surprise expenses. Open up a small bank account and start an emergency fund this year. Put just a little aside each month or each paycheque. It will grow quicker than you think.
- Using payday loans. People get tired of me saying this one, but it goes on almost every list I make. That’s because payday loans are ridiculously expensive. Payday loan companies make them look cheap by saying they cost just $5 per hundred, but that’s deceiving. Payday loan debt is the worst debt you can have.
- Taking things at face value. I’d like every person to become a skeptic in 2016. This is kind of like the payday loan thing. If someone agrees to loan you money, and you don’t have a very good credit rating, ask a lot of questions and consider all the details. Don’t just ask what your monthly payment will be. Find out how much interest you will be charged. How much will the fees be? What is the cost if you miss a payment? Make sure you don’t have any surprises under the hood of that loan.
- Not stopping soon enough. If you already owe money on credit cards, lines of credit or payday loans, then the New Year is a time to stop. If your budget can’t balance because debt payments consume too much of your paycheque, then it’s time to talk to a professional like a licensed bankruptcy trustee today.
By the way, bankruptcy trustees are changing their name to Licensed Insolvency Trustees. That’s because we do much more than bankruptcy. We can help you by offering credit counselling, can look at a debt relief option like a consumer proposal, and only if necessary, will we recommend bankruptcy. So if you are having trouble today, make it your number one resolution to talk to Licensed Insolvency Trustee in the New Year.
About the Author
Doug Hoyes has extensive experience resolving financial issues for Canadian citizens. A Licensed Bankruptcy Trustee and co-founder of Hoyes, Michalos & Associates, he is also a Chartered Professional Accountant (CPA), Chartered Insolvency and Restructuring Professional and Business Valuator. He regularly comments on a variety of TV, radio and other media outlets on topics surrounding bankruptcy and writes a column for the Huffington Post. Hoyes has been a Licensed Trustee since 1995 and has testified before the Canadian Senate’s Banking, Trade and Commerce Committee in 2008.