Real-life case – The 4 Seasons of Debt

In just 3 years, Myriam accumulated over $25,000 on her 5 credit cards. How could she get into debt so quickly without any major expenses?

Often, we find ourselves trapped in the spiral of debt without even realizing it. It’s a gradual process that sneaks up on us. To better understand this phenomenon, let’s compare it to the 4 seasons, and you’ll see how we transition from a bright spring to a harsh winter much faster than we think.

Spring: A source of additional income

It’s the return of the beautiful season, and with it comes the magic of credit! Thanks to her cards, Myriam can treat herself to occasional indulgences that she will only repay later with small payments that don’t seem to hurt her wallet.

She spends an extra $500 per month compared to what her budget allows.

She doesn’t yet realize that she has set foot in a mechanism that will trap her. «Most of the time, the process is so gradual that unless you assess your level of debt each year, you only realize it when it’s too late», remarks Pierre Fortin, authorized insolvency trustee, president of Jean Fortin et Associés.

Summer: A positive budget balance? Deception

Thanks to the additional «income» provided by her credit cards, Myriam is basking in perfect happiness under a radiant sun. She uses the money that was meant for her regular expenses to make minimum payments on her cards… and these cards, in turn, allow her to cover certain ongoing expenses. She is up to date with her bills, but this appearance is deceptive because this balance relies solely on access to credit.

Autumn: The spiral of debt takes its toll

This table illustrates how debt increases rapidly with a monthly deficit of $500. Like the trees shedding their leaves in autumn, Myriam’s budget starts losing feathers…

0 $0

$0 $500
1 $6,000

$180 $680
2 $14,610

$425 $925
3 $25,700

$770 $1,270

* including monthly deficit

Because with $6,000 of credit card spending per year, after 3 years, she won’t have to repay just $18,000, but rather $25,700, which is nearly an additional $8,000!

Winter: reality catches up

With the harsh season comes the arrival of freezing cold and the shock of facing reality. The minimum payments on the credit cards now take up all of Myriam’s budget. She can no longer use them to keep her budget afloat.

«To regain control, she will either have to find a less expensive source of financing through debt consolidation, or reduce the unpaid balance by making fixed monthly payments of $700. This is the solution Myriam has chosen since she couldn’t consolidate her debts», explains Pierre Fortin. At this rate, however, it will take her 5 years to repay all her cards, and it will have cost her almost $20,000 in interest alone.

  • The cost of living increases much faster than salaries, and it’s easy to find ourselves trapped in the spiral of debt. Be cautious when using your credit cards and pay off the balance each month.

  • We live in a society that encourages consumption. Think carefully before making a purchase. Do you really need that new electronic gadget?

  • Even though access to credit, especially credit cards, is easy, it doesn’t mean you can actually afford to spend hundreds of extra dollars each month.