Top Signs Your Debt is Spiralling Out of Control

How to Tell if Your Debt Load is Unhealthy & Tips for Getting Back On Track

There’s a fine line between maxing out a credit card and being forced to take out payday loans in order to get by. So, how do you know whether you have normal credit habits, or your debt is spiralling out of control?

Here’s a look at the top signs that your debt is getting out of hand, along with some advice for overcoming a debt problem and solutions for getting back on track.

What Is Bad Debt?

First thing’s first, it’s crucial that you understand that there is such a thing as both good and bad debt, along with the fundamental differences between each type.

Good debts are often considered an investment that will help you improve your net worth in the future or grow your assets. This includes:

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  • Mortgages
  • Home Equity Line of Credit
  • Student loans
  • Small business loans


Bad debt, on the other hand, does not help increase your net worth—like buying a house or going to college would. Bad debt also typically comes with high-interest rates and is used to purchase things that have little to no value, and can negatively impact your credit rating.

Examples of bad debt include:

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  • Credit cards
  • Personal loans
  • Car loans
  • Payday loans
  • Taxes owing


How Much Debt Is Healthy?

A general rule of thumb to follow to calculate a healthy debt load is the 28/36 Rule. Based on this rule, households shouldn’t spend more than 28% of their gross income on home-related expenses, which include mortgage (or rent) payments, home insurance, property taxes, and condo fees.

And they shouldn’t spend more than 36% of their gross income on total debt service, which includes the housing expenses mentioned above, plus other debt including credit cards and car loans. So, if 28% of your gross income should go to housing expenses, that means only 8% of your income should go toward debt.

Signs Your Debt Is Out Of Control

Here are the telltale signs that you’re losing control of your debt and financial situation:

You Are Unsure of How Much You Owe

If you can’t even guess the balance of your credit accounts because you don’t keep track of what you spend, you might be in trouble. People who are on top of their finances will know roughly how much they owe on each of their accounts because they follow budgets, and they check their statements and account balances often.

You’re Only Making Minimum Payments

While making minimum payments is better than not making payments at all, paying the bare minimum holds you back from paying off your debts. Creditors charge interest on amounts owing, so it could take years to pay off a balance, and you’ll end up paying double what you originally owed if you just make the minimum payments.

You’re Making Late/Missed Payments

If you can’t even make the minimum payments, you need to find a way to lower your monthly expenses, earn more money, or manage your debt. Each late or missed payment hurts your credit score significantly. So, if missing payments is becoming a regular occurrence, it’s time to take action.

You’re Receiving Calls from Debt Collection Agents

When you haven’t paid your bills, they eventually get sent to collection agencies whose job is to get that money from you. Collection agents will start calling you, and the calls won’t stop until you have taken steps to address your debt—such as making payments or negotiating a payment plan with your creditors through a consumer proposal.

Your Credit Score Has Been Impacted

Along with taking a hit from missed payments, your credit score will also be impacted by the total amount of debt you owe. Ideally, your balance owing will be less than 30% of your credit limit. And the closer you are to maxing out your limits, the worse your credit score will likely get.

A Significant Chunk of Your Income Is Going Towards Debt

A significant chunk of your income could be anything more than 15% of your income. Ideally, less than 10% of your monthly income should go toward paying your debts. Any more than this and you could find yourself struggling to keep up with payments.

Your Debt Ratio Exceeds 80%

A debt ratio can be calculated by dividing the total amount of a person or company’s debt by their total amount of assets. To get an idea of your debt ratio, you can calculate the total amount of debt you owe by your annual salary. If you have other assets, like property and savings, you can include these in your total assets as well.

A debt ratio of 40% (0.4) or lower is considered low and is ideal, while any debt ratio above 0.6 (60%) is considered high-risk. So if your debt ratio exceeds 80%, that means your debt is very high, and you should take action to reduce it as soon as possible.

You’re Using Credit Cards to Pay for Everything

You might use your credit card to pay for groceries and other shopping to earn rewards. But if you don’t pay back what you spent when it is due, and you use your credit cards to pay for everything, including bills, because you don’t have the cash to make payments, then you are living beyond your means.

You’ve Borrowed Money to Pay Bills

While friends and family usually don’t mind helping out in times of need, you shouldn’t need their help to pay your bills. So if you need to borrow money to pay your bills, you are living way beyond your means.

You Are Struggling to Afford Necessities Due to Debt Payments

You shouldn’t have to choose between buying groceries and paying bills. So, if you can’t afford basic necessities because your debt payments are too high, it’s time for some restructuring of your financial situation.

Your Debts Have Taken Over Your Life

If you are constantly stressed about your debts and they are reducing your quality of life, this is a sign that your debt is starting to get out of hand. Maybe your debts are keeping you up at night, preventing you from concentrating, causing arguments with loved ones, or keeping you from enjoying life or buying basic necessities like food, utilities, gas, or insurance.

If your quality of life is suffering because of your debts, it’s time to take control of your debts and get back on track to living a healthy, happy, debt-free life.

How to Overcome Debt and Get Back On Track

Here are some debt solutions to help you get back on track with your financial situation.

Debt Counselling

You can meet with a professional debt counsellor or a Licensed Insolvency Trustee (LIT) for debt counselling. With debt counselling, they will look at your financial situation and teach you ways to gain control of your finances, manage your debt, and, ultimately, reduce your debt.

Debt Consolidation

Debt consolidation involves combining all of your high-interest debts into one, so you only have to make one monthly payment instead of multiple payments each month. Since the interest rates tend to be much lower, you can have a shot at paying down your debt faster.

Consumer Proposal

If you are struggling with your debt, collection agents are calling you, and your wages are potentially being garnished, speak with an LIT about a consumer proposal. A consumer proposal will help you reduce your debt by negotiating a settlement with your creditors and putting an end to wage garnishments, lawsuits, and collection calls.


If your debt is completely out of control and you can’t manage it with any of the above solutions, an LIT will help you with the bankruptcy process. Though bankruptcy is considered a last-resort solution for getting out of debt, it is an option.

Bankruptcy is a legal process that involves handing over your assets and making monthly payments to your LIT, who will disperse this money amongst your creditors. Once you have fulfilled your bankruptcy duties, you can be discharged and forgiven of your debt.

The sooner you recognize that your debt is out of control, the faster you can start managing it. And with a bit of work and patience – and help from a Licensed Insolvency Trustee – you can gain control of your debt, eliminate it, and get back to a healthy financial situation, living debt- and stress-free.

Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee and Consumer Proposal Administrator. Its professionals have assisted thousands of individuals successfully resolve their debt crises and overcome financial turmoil since 2002. Its passion – its mission – is your health and well-being!