Canadians have unfortunately spent so much time using the money they don’t have that many have made a life of debt their lifestyle. This article is not aimed at stopping you from getting loans because there is good debt and bad debt. However, it is important to know when the loans you have taken are too many.
This is important because taking too many loans especially the wrong types of loans, might make it impossible for you to get the loans that matter i.e. loans that help you gain assets or help you invest. According to banks and lenders, it has become too much and you have become ineligible for a loan or mortgage when your Total Debt Service Ratio (TDSR) is greater than 40% i.e. you have to use more than 40% of your income paying off the debts you have accumulated on your credit card monthly such as your car payments and mortgage.
It is also too much when your Gross Debt Servicing Ratio (GDSR) is greater than 32% i.e. you spend more than 32% of your income paying your housing costs (the cost of your mortgage, heating, and your taxes).
Apart from sitting and calculating your monthly expenditure (which is a very important and profitable practice). There are other subtle signs that show it is about time for you to take a break from your credit card. These signs include:
#1. Inability to pay for your credit cards in full for 3 months
This is a sign that you are spending more than you earn. And if you are habitually spending more than you earn, it becomes hard for you to put your money where it matters. Even worse, this would give you a poor financial statement which makes it impossible to take the loans that matter, or make use of those financial opportunities that might be above your income.
#2. Feeling the need to hide debts from your partner
There’s not much to say about this one. Having to hide the monthly expenses from your partner is probably a sign that your credit card spending is out of control.
#3. A decline by your financial institution to consolidate your debts
Financial institutions don’t consolidate the debts of customers who have a bad credit score because it is proof that they are most likely unable to fulfill their financial obligations. Therefore, if your loans have given your credit score such a hit that the financial institutions are reluctant to consolidate your debts, it is a sign that you have to stop incurring debts.
Going into debt is hardly an advisable practice, however, it is sometimes necessary, and therefore it is important to only take loans that matter and can be paid back.