The debt management Fantasy;
The financial counselling Myth;
credit counselling in Canada has become a common method of dealing with debt but might not be the proper solution for Canadian’s to administer their debt. In a lot of cases Canadian’s will apply for debt consolidation loans to pay off their debt and begin with a clean slate. Although this takes care of the initial problem it repeatedly developes greater issues down the road. There are two reasons why this happens.
First of all, people are creatures of habit. By a consolidation loan you’re only avoiding the basic issue, your habits. Although a consolidation loan will pay off your primary debt it wont deal with your spending habits. Commonly Canadian’s applying for consolidation loans to pay off their debt end up with twice the debt they started with.
This is the other reason consolidation loans will not work. Once individuals pay back their credit cards or lines of credit it allows them freedom to available debt, causing the cycle to start over again. Usually individuals end up with their revolving credit maxed again, as well as, the consolidation loan that they borrowed to pay off their debt. The most usual statement I hear as a credit counsellor is “I want to obtain a consolidation loan to pay off my accounts”, “I dont want to use revolving credit again”. In theory this is good but more often than not this doesn’t happen
Unless an individual is prepared to tackle their overall problem (i.e. their spending habits) they will not succeed with a debt consolidation loan. In actual fact this is one of the main reasons that the banks have stopped issuing debt consolidation loans. They have, for the most part, stopped this because they recognise that this is only feeding the problem and not solving the problem. If you truly want to deal with your debt, cut up your credit cards, stop access to any revolving credit, make your monthly payments to pay the debt down and track your spending. It is only through the tracking of your spending habits that you will truly understand the fundamental issues of your debt. In order to deal with your debt problems, you must first understand how you got there in the first place.
If you want to live debt free you must recognise your unnecessary spending habits and make changes to eliminate them from your life. If you were to ask me what lesson I teach my clients the most, it’s how to track their spending and identify unnecessary spending.
Greg Martin
Debt Manager
Inspire Credit Counselling Services