More and more people are getting into debt because of how easy it is to get a credit card or to switch credit companies. Most people don’t want to be in debt, but sometimes circumstances are out of their control.

Let’s say you’re in a two-income household and your partner loses his or her job. You still have car payments, house payments, daycare, and other bills to pay. These don’t stop when you lose your job. You may be able to defer them for a short period, but eventually those bills must be paid.

What Is The Debt Cycle?

Simply put, any time the amount of money we earn is less than the money being paid out for expenses, we go into debt.

There are fixed (non-discretionary) expenses like heating and mortgage and there are discretionary expenses like eating out and going to movies. Fixed expenses can’t be changed, but we can control the number of times we go out for dinner or go to a movie. It’s when we don’t manage those expenses that debt becomes a reality.

The Debt Cycle. Photo Credit: effe8According to Statistics Canada, “in 2009, two-thirds of households had outstanding debt that averaged $114,400.” People in British Columbia, Alberta, and Ontario owed between $124,700 and $157,700, compared to the national average of $114,400.

Paying off debt isn’t always achievable and before long an existing credit card has reached its limit. Now we’re forced to get a second credit card or a new credit facility. Many credit card companies offer a “too good to be true” 0% interest card, so debtors transfer their balance to this new card believing this interest rate applies to their new debt. What they may not realize is that the 0% only applies to the existing debt, but they’re still paying a high interest rate on new purchases. Now there are two credit cards to pay off, and the debt cycle continues.

How We Accumulate Debt

There are many reasons why we accumulate debt. Some are in our power, and some aren’t. We can’t control whether or not we get downsized, but we can choose to have backup savings in case that happens.

From the 4 Pillars blog:

Poor money management
It can be hard to understand interest and what it truly costs. Usually inadequate budgeting leads to incurring debt. Without a proper budget you cannot track your expenses. If you write down everything you are spending for an entire month you can see exactly where your money ends up and see where changes can easily be made, this is the best way to learn where you can cut unnecessary expenses and help yourself avoid debt.

Some people lack the self-control and discipline with their spending. Others may not want to control their spending, but the time will come when we will all be held accountable for our spending and the choices we have made.

People worry more and more about the social circles they move in and how they are perceived by their neighbours, friends and family and this can drive how we spend money and incur debt to maintain a false perception of their financial situation.

People go into debt in order to simply survive and provide the basic needs of food and shelter for their family. Necessity is rarely the only reason people go into debt and this usually precedes one or a combination of the other factors listed.

Reduced Income
This can immediately lead to expenses exceeding income. The danger is when it is viewed as a short term set back and normality will quickly return and no lifestyle changes are made (often driven by pride). Immediate action is needed to make sure that you understand what your change in income means so you can create a budget and plan to allow for this. Hopefully the reduced income is temporary and the changes in lifestyle and spending is managed early without using credit to subsidize a lifestyle during this period as it can become extremely dangerous.

More than half of Canadian marriages end up in divorce and this can be driven by or create immense strain on personal finances.

Is an increasing form of entertainment and with the evolution of online gaming it is becoming more prevalent and easily funded through credit cards. It becomes easily addictive with the idea of “The big win” or the mentality I will just win back what I lost, and then I will stop.

Limited Savings
To avoid unwanted debt we need to be prepared for emergency expenses. If you have sufficient savings you are not reliant on easy to access, short term, and high interest credit to meet the unexpected bills. This also creates a comfort zone for severe illness, job-loss, divorce or other life altering events without incurring debt.

How Do You Manage Your Debt?

In a perfect world, the best way to manage debt is to develop good money management and budgeting skills before any of these scenarios take place. Unfortunately, sometimes we don’t have that option, but there is always the opportunity to learn them later in life.

Contact Benjy Houser at or at (250) 882-5556 if you’d like to discuss your debt management options.