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Consumption and Insolvency: A Trap for All!

The use of credit and the ease with which one can have access to it have become necessary evils.

On the other hand, not having access to credit keeps us from enjoying the pleasures of life.
We are constantly solicited by credit companies and/or financial institutions of all kinds while at the same time informed and advised of the dangers of excessive use of credit. The balance between the two is not easy or obvious to attain.

Credit rates have never been lower than they are now, and this encourages Canadians to borrow rather than save. The latest data from Statistics Canada shows that the ratio of Canadian household debt relative to disposable income increased to a new high of 163.3% in the last quarter of 2014. The trend seems to be the same for 2015.
In Quebec, according to calculations by Desjardins Economic Studies, the debt ratio climbed to 146.4% in 2014.

Looking at this data, we see that no one is really immune from excessive use of credit. One of the many pitfalls of consumption is that the consumer does not take into account the ability to refund personal or family debts. Consumer debt can easily get out of control and quickly become difficult to manage. Apart from the pitfalls of over-consumption, several other factors can also lead a consumer into a situation of insolvency: Job loss, an accident, illness, separation or divorce etc.

An insolvent consumer is, by definition, anyone who is unable to pay his/her debts (mortgage, consumer loan, credit card or line of credit). When a consumer’s debts reach more than $1,000 and he/she is unable to pay it by the due date, the consumer is considered insolvent.

The best solution to out of control debt is to face reality instead of ignoring it. The more you put your head in the sand, the bigger the problem will become. Becoming aware of one’s situation and acknowledging the need to deal with it without feeling defeated is a step in the right direction.

Another step is to quickly find a trusted financial advisor or accountant to help you get a handle on your financial situation. A financial advisor or accountant is there to help you find solutions tailored to your ability and financial reality. The worst decision is to do nothing- thinking that the problem is temporary and will work itself out. It won’t.

Remember the old saying: “What I face…. fades; What I flee….. follows me.”