Canadians are more in debt than ever, according to the latest figures from Statistics Canada. With the holidays just around the corner, this unsettling trend doesn’t look to change anytime soon. Household debt to income reached 163.7 per cent in the third quarter of 2013 – a new record!
That’s up slightly from 163.1 per cent in the second quarter this year – and it means for every dollar of disposable income, the average household owes $1.64 – yikes!
Debt To Grow Even Bigger Over The Holidays
Charlie Brown probably said it best in A Charlie Brown Christmas when he complained about the over-commercialization of the holidays. It’s no coincidence that retailers roll out their best deals of the year, such as Leon’s infamous Ho! Ho! Hold the Payments event, making it easy to get caught up in the holiday spending spree. With the pressure to spend hundreds – if not thousands – of dollars on gifts for loved ones, the true meaning of the holidays – relaxing and spending time with loved ones – seems to have been lost in the shuffle.
Canadian Household Debt To Income Ratio Set To Grow Higher
Consumer confidence is supposed to be a good indicator about confidence in the economy – so why are we so glum? It’s because Canadians are spending money they don’t have, financing big ticket holidays gifts with credit. Even worse, consumers say they plan on spending even more this holiday season than they did last year. In fact, holiday spending is expected to be 30 per cent higher than 2011. Canadians seem perfectly content racking up massive purchases now and not worrying about them until they receive their credit card bill in the mail in January.
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Overspend Now, Pay Later
Although the holidays often put people in good spirits, your mood is sure to sour once you’ve realized how much you’ve spent. “The holiday season seems to give consumers an excuse to overspend now and pay later to fill the wishes on their family’s list,” says Chris Mazur, trustee in Bankruptcy & Senior Vice–President at BDO Canada Limited. “Consumers need to exercise more restraint during this time of the year and remember buying gifts should not be the justification for or be at the expense of increasing debt.”
Credit may be cheap now, but you could be in for a rude awakening when interest rates return to normal levels. “Canadians struggling with debt will be in for a shock when interest rates do normalize,” warns Mazur. “Although we cannot predict when the rates will rise; consumers need to be prepared for the inevitable and control their spending now.”
Show Some Spending Restraint
Just like your New Year’s Resolution, keeping your spend in check requires willpower. Mazur recommends the following easy ways to exercise some restraint and reduce your holiday spending:
- Paying with a debit card where the funds are taken directly from your account
- Putting your credit card on ‘ice’ in favour of other methods of payment
- Using your loyalty points to pay for gifts
- Setting limits on the cost of every gift and being diligent to stay within the designated amount
- Limiting the number of gifts given this year
Aiming to spend less is often easier said than done. Keeping your spending in line all comes down to honesty and trust. “The best advice BDO can offer to encourage family and friends is to be honest with one another about what they can afford to spend this year and set limits for gift giving,” says Mazur.
Create a New Frugal Holiday Tradition
Just because you set a spending limit, doesn’t mean holiday gift giving has to be boring. Mazur offers some examples of new and creative holiday traditions you can start this year:
- Take your family to a local food bank or shelter and volunteer your time to those less fortunate – it will be the gift that keeps on giving
- Create and enjoy a holiday meal with friends and family who you would otherwise be giving gifts too – the time you spend together will be memorable
- Make rather than buy your gifts – keepsakes live forever
- Hold a ‘white elephant’ game – such fun, especially if you are the last person and are able to choose from all of the gifts