Lines of Credit Debt – Help & Advice

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Overview

Lines of credit are a type of loan that allows you to borrow funds up to a fixed limit. They are very similar to credit cards and can be paid back at any given time and interest is only paid on the money you borrow. People use lines of credit for many reasons, such as home improvements or to fund business expenses.

However, paying it back often becomes a never-ending race to the finish line as the minimum payments are usually equal to the monthly interest that is charged.

As with most loans, it’s not just the interest that can make people feel unable to pay back their credit lines. As the main benefit of a line of credit is its flexibility and there doesn’t need to be a set reason to take out one, this can often lead to increased impulse spending. This then leads to people maxing them out and your monthly payments spiking to the point where it becomes no longer feasible to pay back.

Most people will opt to just make their minimum payments each month because it is the cheapest option of paying it back. However, as withdrawals and repayments are on an unscheduled basis people are often shocked at the level of interest that they pay back because interest is gathered from the moment any money is borrowed and interest calculations are often complicated. The lenders also preserve the right to spike the interest levels at any given time, meaning many can end up paying back almost double what they borrowed.

Overview

People use lines of credit for many reasons, such as home improvements or to fund business expenses.

How Credit Line Debt Can Affect Your Life

Lines of credit can seem like the perfect solution to a problem at the time, if it begins to spiral out of control your life can be impacted in multiple ways.

Personal Finances

Interest rates can range from 9.30% -17.55%, and some banks even charge fees just for maintaining your line of credit. These are charged whether you draw on any of the funds or not, and running up a high balance can ultimately hurt your credit score.

This then has a knock-on effect in terms of being accepted for other forms of credit such as mortgages or car loans. Given that interest is also variable on credit lines and can increase at any time, people may have to turn to other forms of credit just to help pay the interest. Drawing more money out of your credit line also increases your minimum payments, meaning people often have to cut back elsewhere just to make payments.

Mental Health

Debt and mental health struggles often go hand in hand. It is well known that being in debt can affect a person’s mental health, but it was also reported by the mental health charity Mind, that those who already live with a mental health problem are also more likely to fall into debt. The stigma that surrounds debt also leaves people feeling like they can’t tell their creditors about their mental health issues and companies may not consider your mental state when making decisions about your financial difficulties.

Relationships

Debt can be pretty taxing for most people, the weight of debt on a person’s shoulders mixed with the stress and anxiety of trying to claw your way out of debt often impacts on the relationships with the people around them. The strain of paying back into your credit line has the power cause tensions between partners, which can hinder discussing the problem. If your minimum payments are increased, this often means you have to cut back elsewhere which can prevent time being spent with friends, family and loved ones.

Warning Signs

Given the flexibility of lines of credit and the easiness of minimum repayments, it might not always be easy to spot when it is beginning to spiral into the realm of unaffordability. The points below are some signs to look out for if you feel you are struggling:

  • Your balance isn’t reducing by much each month due to interest
  • Feeling stressed and anxious about the balance
  • Using other forms of credit to help you meet minimum payment
  • Leaving yourself short for other bills trying to make higher payments
  • Avoiding conversations about the issue

Many people feel guilty or ashamed of their debts, and so it will not always be apparent that they are struggling. Below are some points to look out for if you think someone you know is having financial struggles:

  • Avoidance of spending, cancelling plans often
  • Noticing unopen bills piling up
  • They are noticeably stressed or withdrawn for no clear reason
  • They avoid the topic altogether

If you are unsure of what to do next, lenders may be able to offer you repayment assistance. Money managers are also available online to help you budget for your payments.

How to Get Help

Debt can be a lonely place and can often leave people not know where or who they can turn to. The below points are some steps you can take to try and get back on track.

Open Up – Talking about your struggles can often give you some reassurance that you are not alone and help you find the support you need to tackle the problem head on

Seek Advice – Contact the provider to try and negotiate your payments, sometimes explaining your situation will help to lower the repayments.

Get Help to Clear Your Line of Credit Debt – Debt doesn’t have to take over your life, here at Money Advice Canada we can help you make your debts manageable with confidential, non-judgemental advice from our expert advisors.

Warning Signs

Debt can be a lonely place and can often leave people not know where or who they can turn to.

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