5 Signs You're Already in the Financial Sweatbox

In our previous blog What is the “sweatbox” and why should you avoid it? we discussed the concept of the sweatbox and the negative impact of time spent in it. But too many people don’t realize they’re in the sweatbox until they’ve been in it for years. Identifying this can be the most important step toward solving the problem so that you can escape the suffering caused by your unmanageable debt.

1. You're facing increasing pressure from lenders to re-pay your debt

When you haven’t paid your debt on time, someone will eventually write to you or call you to ask you to pay it right away or enter into a payment plan. If that happens and you are able to work with them to reach a realistic agreement to pay the debt soon while still meeting your other commitments, then you likely won't have an issue. But often they’ll ask you to pay more than you can afford. And when an agreement can’t be reached, things tend to escalate. If you are experiencing any of the following, you may be in the sweatbox:

• Debt collectors are calling you repeatedly, making increasingly urgent demands. You have probably stopped answering their calls, but you feel a rush of anxiety any time an unknown number pops up on your phone, knowing it could be them.
• You’ve received a legal notice that you are being sued (likely in the form of a Statement of Claim) or informing you that a lien or writ has been registered against your house or other property. You know you owe the debt, but you can’t pay the amount needed to stop the action.
• Your employer or a customer has informed you that a creditor has issued a garnishment notice or requirement to pay to them so that they are forced to pay some or all of the money they owe to you to the creditor instead. You aren’t going to be able to make ends meet without that money unless you borrow more.

2. You’ve been forced to drain assets, and that’s making it even harder to service your debt

When you can’t get ahead of your debt with money left over from your paycheck, you might consider selling assets or mortgaging them to pay the debt. This can be a good strategy if you have enough assets to fully pay the debt or get it to a manageable level, but when assets are drained just to get a temporary reprieve from debt collectors, it can make the problem worse. You could already be in the sweatbox if any of the following are true:

• You now have higher monthly payments as a result of mortgaging assets (such as a second mortgage on your home), and you’re finding it really hard to manage those increased payments and still pay your remaining debt.
• You sold assets that were generating income, such as investments or business assets, leaving you with less money coming in and making it harder to scrape together payments on your remaining debt.
• As a result of selling an asset, you now have higher ongoing expenses, making it harder to make ends meet and still service your remaining debt. This can happen when you sell a home and are forced to rent at a higher cost or sell a car and are forced to hire a taxi or Uber for necessary trips to work or the grocery store.

3. You're going without and you have a sinking feeling it is going to catch up with you soon

Saving money on daily expenses so you have extra cash to pay debt is a solid plan. However, if you had already trimmed the unnecessary expenditures (i.e., wants) and still weren’t able to get ahead of your debt, you may have started cutting down on needs. This can be risky and can land you in the sweatbox. Some examples:

• Going without car or home maintenance/repairs: Properly maintaining assets not only keeps them operating optimally, it also tends to cut costs in the long term. If you put off those expenses now, you may face an even bigger repair bill down the line and also cause the value of the asset to decrease, so that if you ever decide to sell it to pay debt (see #2) you will get less for it.
• Dropping out of school because you can’t afford the cost or you need to spend more time at work is sometimes a reasonable short-term plan. It is also sometimes a good strategic decision based on an economic analysis of the cost of the education compared to the jobs that it can provide. However, it can also be an act of desperation which reduces your ability to earn income (and therefore service your debt).
• Cheaping out on your daily health: Like your assets, your body requires maintenance. Eating cheap food with low nutritional value, cancelling your gym membership without finding other ways to exercise, and putting off dental hygiene appointments are examples of things that can save money in the short term, but can result in higher costs in the long-term if they cause or exacerbate physical or mental health conditions.
• It goes without saying that if you're having to make difficult choices like paying your electricity bill or making your minimum credit card payment, buying groceries or paying your mortgage, re-filling a needed prescription or paying a tax debt installment, your debt is unworkable, and you are already experiencing the stress of the sweatbox.

4. You’ve had to resort to high-interest debt on more than one occasion

Sometimes, you need a loan in a hurry for an urgent matter and you have to choose a lender of last resort, such as taking out a payday loan. If it is a one-off situation and you are able to pay it back right away, no harm done. But that often isn’t the way it goes. High-interest debt can cause a debt spiral, where you are constantly taking on more debt to pay off, or even just make a payment on, the previous debt. 

Sometimes, the debt spiral is caused solely by the high level of interest being charged which causes your debt level to keep rising. But often the underlying reason for the debt spiral is that you couldn’t afford to take on the debt in the first place. A lower-interest lender likely would have denied you the credit because of this, but the high-interest lender is less concerned about your ability to pay back the initial balance because they'll make enough money off the interest while you struggle to pay back the debt to outweigh the risk that you will default.

If you've had to resort to a high-interest lender on multiple occasions, you're at risk of being dragged into the debt spiral. If you are already in the debt spiral, you're likely already experiencing the hardship of the sweatbox.

5. You stress about your debt all the time 

Perhaps the worst thing about the sweatbox is the emotional toll it takes on its inhabitants. As a society, we put a high social value on paying back our debts. The vast majority of people care deeply about meeting their financial commitments and many are ashamed when they are unable to do so. As with anything we care deeply about, when we struggle financially we put a lot of physical, mental, and emotional energy into making ends meet and scraping together money to pay our debts. The amount of stress one experiences from this is often proportionate to the extent to which they know (whether they have admitted it to themselves or not) that they are in over their heads. 

If you are constantly stressing about your debt, you may already be experiencing the negative impacts of the sweatbox.

 

If you think you are in the sweatbox or headed that way, it may help to talk to someone about your options for dealing with your debt. Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We provide FREE no-commitment consultations, and we would be happy to help.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.