By Julie Jaggernath

When it feels like you have too much debt, it might be hard to come up with good ways to solve your financial problems. It can actually help though, to think about your debt problems as if they were someone else’s. What would you tell someone who needs help with debt? What advice would you give a friend who has made these bad money mistakes?

Here are 3 money mistakes many people make when they are in a lot of debt, why they aren’t good ideas, and what to do instead:

1. Ignoring Your Bills because You’re Broke and Have No Money to Pay Them

If you ignore your household bills because you’re broke and can’t pay them anyways, you lose track of what you owe. And believe it or not, not knowing is actually much worse than knowing. Instead of ignoring your bills, write down what you owe and to whom. Then prioritize your debts from most to least important; housing and vehicle payments are typically at the top of the list.

Next outline a budget and see how much money you can afford to pay towards your debts and bills. If you can at least pay what you owe each month, plus a little to catch up, that’s a good start.

Then track your spending for a month to see where you’re actually spending your money. You will likely be surprised to find out that you have more money to put towards bills than you thought.

When you don’t know how much you owe and to whom it becomes really hard to get back on track, to organize your money, and to stop living pay cheque to pay cheque. So stop avoiding and start doing.

2. Applying for More Credit to Borrow Your Way Out of Debt

More credit means more debt, regardless of where you borrow it from. You might try to convince yourself that a bit more debt won’t matter because you already owe so much anyways. Or that this new loan will for sure help pay off your bills and turn your finances around. If you don’t dare whisper your dream to become debt free, you’re probably at the point where you feel like you’re drowning and that you need help with debt in a way that doesn’t force you to borrow more money.

A better idea than trying to borrow your way out of debt, especially if you try to get a bad credit loan, is to look at little known Canadian debt consolidation options and solutions for financial problems provided by a non-profit credit counselling agency.

There are debt management and repayment solutions available that don’t involve borrowing more money. Do-it-yourself DIY options, once you get a bit of help to calculate a realistic household budget, might also be possible. You can’t borrow your way out of debt, so quit trying; spend your time exploring better options instead.

3. Robbing Peter to Pay Paul – Using One Form of Credit to Pay Another

When you “rob Peter to pay Paul” it means that you use one kind of credit to make payments on another kind of credit, e.g. using overdraft on your bank account to make the minimum payment on your credit card. Shuffling payments back and forth depending on which account has some credit limit left, puts you into a dangerous cycle of never-ending debt.

Financial problems don’t usually happen all at once. It can feel that way when you face a trying life event – like a job loss, death of a spouse, divorce, income reduction, illness or injury; but debts tend to pile up a little at a time, over a period of time. Robbing Peter to pay Paul builds what amounts to a house of cards, in danger from the slightest unrest.

There’s no easy fix when you rely on credit to finance your lifestyle and to pay your bills, so start by opening up a new bank account, without an attached overdraft or a line of credit, at a bank where you don’t owe any money. Deposit your pay cheques into the new account and create a plan to pay off what you owe elsewhere. This is the first step to dealing with financial hardship. By opening a new account you can keep better track of how much money you actually have, rather than basing your spending choices on how much available credit you have.

Solving Financial Problems When You Think That You’re in the Worst Debt Possible

So what advice, to solve their financial problems, can you give a friend when they think that they’re in the worst possible debt? Assure them that they’re not in this alone and that there’s help available if they want it. There’s also help available if you want it. You don’t have to worry and struggle on your own.

Debt levels in Canada are at the highest they’ve ever been, but that doesn’t mean that you shouldn’t get help to deal with your debts if you’re facing financial problems. There are debt relief options available that many people, including those who work in the personal finance industry, don’t know about. Contact a reputable, non-profit Canadian credit and debt counselor to find out more about the free, confidential guidance and counselling they offer either in person or over the phone. You’ve got nothing to lose but your debt.