151 – Signs You Might Be in Financial Trouble

Wayne Kay 00:04
The top signs you might be in financial trouble. That’s our topic today on the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.

I’m Wayne Kay and coming up in today’s show, we’re going to talk about, with all the financial pressures that Canadians are feeling these days, how do you know when things are so tight that it’s time to reach out and get some help? Are there some maybe subtle signs that we should be keeping an eye on? And what kind of options should people be looking at when they’re in financial trouble?

We’re going to learn about that more today with my guests. David Macdonald with Allan Marshall & Associates Licensed Insolvency Trustee from Victoria, BC. Also have offices in Dartmouth, Nova Scotia.

Hi, David.

David Macdonald 00:55
Hi. How are you doing?

Wayne Kay 00:56
I’m great. How are you doing?

David Macdonald 00:58
Very best.

Wayne Kay 00:59
Good. As soon as we connected, you’re like, holy cow we’re seeing some stuff these days, and anybody who’s been watching the news definitely getting a sense of what’s been happening. But Canadians, we’re feeling some pressure financially, aren’t we?

David Macdonald 01:17
Oh, absolutely. I haven’t seen anything like this probably in the two decades that I’ve been working helping people with financial issues. This is as bad as I’ve ever seen it happen these days.

Wayne Kay 01:28
What? Really? Lots of phone calls?

David Macdonald 01:32
Lots of calls. Lots of people that are calling in are just regular, everyday folks. And the combination of inflation, of high interest rates, of mortgage costs, they’re all coming together in a not very perfect storm to squeeze people that normally would be doing just okay, getting by and saving money and feeding their families. But people are finding it really hard these days.

Wayne Kay 01:55
There has been a big change in the last four years. We’ve seen things just go completely sideways. I’m assuming this is why we’re seeing people in this hard situation now.

David Macdonald 02:07
Absolutely. Just before our call, I was pulling up some bank of Canada statistics on financial pressure that people are having. The latest numbers out of June 2024 are saying that the percentage of credit in Canada that’s in arrears is now past about 2.4%.

That’s the highest we’ve seen since the financial crisis in 2015. Back when they started looking at these numbers, it was about 2.5%. So we’re just within one 10th of a percentage rate of seeing as bad as it’s been in the last decade. And that trend took off at the start of 2021, coming out of the pandemic and it doesn’t show any sign of stabilizing anytime soon.

Wayne Kay 02:49
I guess we expected it to happen. I think it held off a little longer than we were expecting, didn’t it?

David Macdonald 02:57
It did. And what we found is that people paid down their debts during the pandemic, and then when they came out of it, we got hit with the higher interest rates, the higher cost of borrowing, and inflation on everyday staples like gas and groceries. And what people did is, what everybody tries to do, they relied on credit a little bit to get them through a tight spot.

Some people dipped into their savings. I’ve seen a lot of people that have completely tapped at their credit and drained their RRSPs before coming to see us. And now they are up against a wall.

Wayne Kay 03:30
I am so happy we’re going to discuss this, because when you say that, that’s heartbreaking, because that’s the one thing you should not have to do. But people want to do the right thing.

That’s what we want to do. We got ourselves into this situation. It’s not something that Canadians take lightly when they owe, and so they do everything they can, and in a way, it kind of ruins them, doesn’t it?

David Macdonald 03:53
It does, and I’m going to take a little bit of an issue with people having gotten themselves into the situation.

I don’t think any reasonable person would have seen what was coming financially in terms of the change of interest rates, in terms of the cost of actual living.

Nobody would have suggested that we’d be looking at gas prices that were right around the $2 a liter mark or that interest rates for basic housing would be north of 4%. That’s two or three times what it used to be. It’s bananas. That’s not something that I think anybody, when they were dealing with what would be normal management of their debts could see happening to them.

Wayne Kay 04:34
Right, but all of a sudden, they put it on credit because they have to, but they always feel an obligation, like, oh, my gosh, I’ve done this. I need to get out of it. There’s just so much going on around us. I mean, I’m angry every time I fill up, and I’ve cut my driving.

I do not drive anywhere near like I used to. I’ve cut it way back. I’m still angry every time I fill up. Because there’s nothing we can do about it, right?

David Macdonald 04:59
No, there isn’t. And all of that price, it translates into everything we touch, everything around us, all our food, all of our consumer goods. It all comes here via some type of transportation, and that takes fuel, and that is unmanageable these days. And it trickles down through everything that we have to buy and consume and use.

Wayne Kay 05:20
Are the banks helping out at all – because you go to mention pulling out your RRSPs.

I would think at that point a bank person would say, hold on, can I help you out? Can I give you some advice? Are you seeing any of that or are they just hands off?

David Macdonald 05:37
The short answer is no, they’re not. When somebody comes into our office and they’re looking at dealing with their debts, we try to make sure we go through all of their options with them to make sure they can make the right decision.

And one of the options that consistently we bring up to people is, have you looked at trying to get some type of consolidation loan or line of credit from your bank? Those are great options. They are fairly low interest rates. Usually they have fairly favorable repayment terms, and if you use them properly, you can actually build your credit with them, if you can get out of a financial jam at the same time.

But I’m hearing more and more that people who we would have thought would qualify for a consolidation loan have already been there and the banks have said no.

Wayne Kay 06:19
Really? Why? It is shocking to me.

David Macdonald 06:25
Well, it’s two factors. Number one, the banks are kind of turtling right now. They are setting up big loan provisions on their financial statements to say, hey, we think we’re going to be writing off a lot of bad debts. So they’re not keen to take on new debt at this point.

And also, people are carrying more debt coming to the banks. They’re not seeing the signs up front that there’s some financial difficulty and they’re digging themselves into a point of no return where the bank says, I don’t know if we’re going to be able to give you a loan that you could repay at a reasonable period of time.

Wayne Kay 06:57
Right. But here, why don’t you stick with this 22% credit card and struggle with that instead? It’s just mind boggling to me. It makes, and I’m sounding like an angry guy. David, I don’t mean to be, but it’s frustrating that we pay that much money for credit cards just to feed our families.

David Macdonald 07:19
Absolutely. Yes. It is a tough spot to be in.

Wayne Kay 07:22
Okay, so what, there’s some signs you must see some subtle signs that can kind of give us a little bit of a hint – I need to be careful because things could slip here.

David Macdonald 07:34
Well, the subtle signs are the key things to look at. I mean, obvious signs that people know that they’re having financial difficulty, when they have creditors contact them, when they’re missing payments, when they’re borrowing more money to pay off existing debts, when they’re not able to keep up with interest or minimum payments. Those are the kind of obvious things, but people start to see issues with their finances long before that.

And when I talk with people, I always ask, how did you get here? Was there some type of triggering event? Did things catch up over time?

But people know, most folks, they don’t get blindsided. They have gut feelings about where they’re at. That’s not a very accountant thing to say, but a lot of people should go with their gut. When you feel that you don’t want to open the mail or look at your bills because you know it’s not good, that’s not a good sign. You start losing sleep wondering how you’re going to manage things at the end of the month.

You start hiding your debt from people in your life. You don’t want to talk about it with other folks. Or if you feel that you get that in the pit of your stomach, you start to think that, I don’t know if I’m going to be able to fix this. And that’s subtle, and it’s hard to put words to that. But when you start to have unease about your debt, that’s a sign that you’ve got an issue.

Wayne Kay 08:55
Do you find that most people who are in this situation – are they single or are they married – a couple?

David Macdonald 09:04
I’m seeing people in all walks of life. I mean, people will take a look at insolvency rates and they’ll cherry pick different demographics to get a great headline.

Like, they’ll say rates are growing for seniors or millennials are in trouble, but we’re seeing people right across the board. Inflation is not kind to anybody, and neither are interest rates.

Wayne Kay 09:24
Actually heard a topic saying that possibly a recession would have been better than the inflation because inflation was right across the board. Everybody got hit. And I thought, well, it’s sad that we even have to think that way about which would be the better of the two evils.

David Macdonald 09:42
Well, it’s something that’s been coming for a long time. And we did get used to low interest rates, and people have sort of financed their way up on things like that. And we got used to having credit.

But one of the other subtle signs is that when you start needing credit to meet day to day expenses. Whenever credit isn’t a convenience anymore, it’s a need, you need to go and borrow the money.

It’s not always about going out and taking out a new loan. People, sometimes they’ll need to get a cash advance to cover something because they’re running out of available money to do something. Or even more subtly, they’re living in their overdraft on their bank account.

People don’t really look at overdraft as being a kind of credit, but I’m seeing people come into my office now with two or $3,000 in overdraft that the bank has given them. And between the fees on that and the interest rate cost on it, it is a substantial chunk of change, and it’s coming out of your next paycheck before you even get it.

Wayne Kay 10:40
How does it work? I’ve never had an overdraft.

David Macdonald 10:45
Well, an overdraft is for – I’m going to date myself here by saying this, but people always used to talk about balancing their checkbook every month. You’d always make sure you didn’t run me below zero because your check would bounce, it wouldn’t go through, which was a very embarrassing situation to find yourself in.

So the banks came up with a product called overdraft. And basically, if you go over your bank balance, you have a mini pre approved line of credit with the bank that you can dip into. They’ll charge you a fee generally each time you do it, and there’ll be interest on that amount. But you don’t have to go through the aggravation or the embarrassment of having, say, your card bounce at the grocery store, or your debit card.

Wayne Kay 11:28
Okay, but the interest rate, I didn’t realize. I guess I don’t know why I wasn’t even thinking that there would be a high interest rate or high fees for the darn thing.

David Macdonald 11:39
Oh, it is a convenience. And the banks, they love to charge people dearly for it. And it’s one of those, it’s not really hidden because you’ll see it on your next statement, but you incur it. They don’t give you a warning first. If you run yourself into your overdraft, the bank will cheerily charge you a fee and a cost until it gets caught up when your next pay rolls in.

Wayne Kay 12:00
But then you’re kind of behind the eight ball because all of a sudden you’ve used that. You take off that thousand dollars off your paycheque – leaves you with whatever it is, $300 maybe, and then all of a sudden you’re stuck in that.

So we have to talk about how to go about breaking that cycle. What kind of options do you have for people to break that cycle and be able to make a change?

David Macdonald 12:27
Well, part of that is trying to get an idea of your money management. And if you’re consistently running short on something, if you’re consistently needing to rely on credit, like overdraft or other types, and you’re not really getting ahead. Or in the example of an overdraft, if you’re behind the equal every month, you need to have a plan. You need to sit down and say, okay, I have a situation. I do have some financial trouble here.

It’s not major – it’s manageable. It’s certainly something I’m dealing with every month, but it’s not going to get better. And in the best case, you’re going to tread water until you have a major favorable life event, like a big raise or an inheritance or something like that, or the old standby winning the lottery. But that doesn’t really happen.

You’re much better off coming up with a plan and a budget and getting a handle on your situation and figuring out how you’re going to deal with the situation that you’re in.

Wayne Kay 13:24
And I’m going to say it’s critically important that before you start dipping into your TFSAs and your RRSPs, reach out to a Licensed Insolvency Trustee. At what point do you say, okay, I need professional help?

David Macdonald 13:40
You know, the simple answer is, ideally, before you start to get stressed out about money. There are a ton of free and lots more paid resources out there to help people become more comfortable with the idea of dealing with their finances. It’s not something that people are born with. People aren’t born being accountants.

It’s hard enough to make people accountants. But regular folks, unless you get taught by your family growing up, you certainly don’t get taught enough in school about the basics of money management. It’s something that you have to learn on your own, and that takes time. It takes work.

But the amount of worry and stress and the amount of our life that gets consumed with making money, spending money, saving money, there is a great number of rewards to be had by learning a little bit about that process and becoming more financially literate.

Wayne Kay 14:33
So critical. I know in your office, it is a free consultation where you will look at what exactly is going wrong and throw out some tips for them. And if that helps them right there and then great, they can go on and they can try to implement that. And if they need more help, well, then you take the next step. That free resource is really important.

David Macdonald 14:58
It is. And there’s no shortage of them out there. The government of Canada has some excellent resources on its website. If you go to some of the credit counseling societies or organizations like money mentors in Alberta, they’re more than happy to sit down with you. It’s not just Licensed Insolvency Trustees that can do that.

And there’s lots of free budgeting apps that are out there to help you figure that out. Mint, that’s now part of Intuit. That was a great resource. They rolled that into the Credit Karma credit reporting site. So you can actually take a look at your credit scores, you can take a look at what you have outstanding for debts, and you can actually do some budgeting at that time as well. Go through your income, your expenses, and try to figure out opportunities to help balance your budget a little bit better.

Wayne Kay 15:48
Right. Okay. We covered a lot of information here on this, and I’m really happy that you’re able to share exactly where we are as Canadians and how tough it is for so many people. And it’s important for people to realize they’re not alone in this situation.

David Macdonald 16:05
Oh, they are absolutely not. As I said, I’m seeing an awful lot of regular, everyday Canadians calling into us now that never thought they would be asking a Trustee for advice on their situation.

And as you kind of hinted at, maybe, you know, 20% of the people that I deal with, they don’t need one of the more extreme measures. They need just some basic advice on managing their finances, getting a handle on what they owe, and coming up with a plan to move things forward – reaching out and talking to somebody who is a professional in the field to say, what should I do? If it’s not going to cost you anything, if it’s a bit of time, if it might take some of that stress or anxiety off you, it’s a call that’s well worth the call.

Wayne Kay 16:48
Absolutely. Any final thoughts you want to share with us?

David Macdonald 16:52
I think the biggest fear that people have is the shame of being behind on their debts. And they think that nobody else is having the troubles that they are, but other people are.

That stat that I threw out at the start saying, how many more people were 90 days or more behind on their debt? I mean, to get three months behind on your debts is not good. That’s worse than just making the minimum payments. It’s worse than being a month or so behind.

That means if you’re looking around on the bus or on the street, probably two or three people that you see there are in worse financial shape than you are and the number of people that are just making things work, you’re probably looking at a couple dozen people within sight.

Anytime you’re in a busy public spot, they’re not talking about it. They are calling people like ourselves and getting the help they need. But it’s not just you. If you’re having trouble with your debt, if you’re starting to worry about it, absolutely pick up the phone and call and see what resources are out there for you.

Wayne Kay 17:47
David, thank you very much for being on the show today. It’s been a pleasure.

David Macdonald 17:51
My pleasure. Always great to talk with you.

Wayne Kay 17:54
Well, my guest today, David Macdonald. You can learn more or schedule that free consultation with Allan Marshall & Associates Licensed Insolvency Trustee at wecanhelp.ca.

And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And for more information, you can always check out debtmatters.ca. Thanks for listening.