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Debt danger signs

Canadians can thank our banking regulations for the fact that most of us were spared the catastrophic consequences of the sub-prime mortgage crisis, but our debt levels, particularly credit card debt, are still spiraling upward. To help reign in spending before debt gets out of hand, Bankrate asked the experts how do you know when your debt is getting out of control and what are the early warning signs?

Here are five red flags and some suggestions for what to do if you see them:

1.) Making only minimum payments
The minimum payment on your credit card may look fairly substantial to you but it mostly goes toward paying the interest due on your account.

Patricia White, executive director of Credit Counselling Canada, says this is the mistake that leads most people into trouble: "If someone is not able to pay their credit card balance in full every month, that's the first indicator. People don't stop to think about the amount it costs them to carry a balance on their credit card."

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She suggests people turn over their credit card statement and read the chart on the back for some perspective. "Fortunately on the back of credit card statements we have the amount of time it will require to pay off your balance -- it can take ten years," she says.

2.) Maxing out credit cards and looking for more
Credit card companies are only too happy to have you take on more debt. Perhaps you've had pre-approved cards or applications arrive in the mail and it's tempting to sign on for another few thousand dollars' worth of credit, just in case you need it.

If your cards are nearing their limits, however, this is not the right time to be looking for more credit. Every credit card company charges a fee and the fact that your cards are nearly maxed out means it's time to figure out how to pay them down, not take on more debt.

3.) Cashing in a RRSP
Liquidating a secure investment is a sure sign that you're in too deep. Your savings are as important as your earnings. Cashing in a RRSP not only takes a bite out of your retirement, it will mean paying more taxes too as withdrawals are taxed as income.

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-- Posted August 24, 2012
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