Canadians’ spendthrift habits have thrust the issue of national debt levels into the spotlight once again, as the household debt-to-income ratio hits another record high. Just how much debt are we talking about? Turns out we owe to the tune of a whopping $1.5 trillion, according to Equifax Canada.That’s an increase of 7.4 per cent in the third quarter alone – and while mortgage debt is accountable for almost two thirds of this figure ($985.1 billion to be exact), it’s the other forms of debt that are worrisome. To put these numbers into perspective, the average Canadian is carrying a mountain of debt: an average of $20,891 not including their mortgages.
Where Is All Our Debt Coming From?
A main contributor to the consumer debt mess is today’s low interest rate environment – it’s just so cheap to borrow these days. And, while our parents may still have bad memories when Prime rate was north of 20 per cent in the 1980’s, for a lot of us it seems like a distant memory (you might not have even been born back then). While the Prime rate isn’t likely to reach that level again, if you’re carrying too much debt, you can be in for a rude awakening when interest rates eventually go up. While the overnight lending rate has been frozen at 1 per cent for four long years, it has to budge eventually. If you have debt tied to prime rate like a variable rate mortgage or student loan, can you afford the higher debt servicing costs?
Also read: Why do Mortgage Rates Change?>
Car Payments Lead Consumer Debt
When we drill down the consumer numbers for a closer look, we can see what’s truly leading to ballooning debt levels. Globe and Mail personal finance columnist Rob Carrick once referred to a car as a “money pit on wheels.” This seems like a fair assessment, as auto loans are contributing their fair share to the increase in household debt. Auto loans are up 6.8 per cent from last year. While mortgages and student loans are considered good debt, an auto loan is considered bad debt since it decreases your net worth. You’ve probably heard the joke that a new car loses half its value the second it drives off the lot.
There is a silver lining to this story: despite high debt levels, we’re still finding a way to make our debt payments. Not only are delinquency rates down, currently standing at just 1.1 per cent – bankruptcy rates are down, too.
3 Tips for Controlling Your Holiday Spending
Concerned about your own contribution to our nation’s debt? The holidays are an especially challenging time of year for those trying to manage their debt payments – with all the extra spending on presents, travel and festivities, it’s easy to watch debt levels spiral out of control. Here are some tips for ensuring you’ll be just as jolly when you receive that January credit card statement.
1. Shop with a List
Similar to a grocery list, consider creating a shopping list when you go shopping for holiday presents. You’ll be less likely to haul away a big screen TV you can’t afford. Remember the golden rule of sales: 50 per cent off is still 50 per cent on.
2. Check Flyers from Home
Avoid the pressure of the malls and shop from the comfort of your own home. Why waste time driving around to different stores for the best deals when you can browse the deals at home? Visit retailer websites or use phone apps to find the best deals. Don’t buy anything without comparison shopping to see if you’re really getting a “steal of a deal.”
3. Track Your Spending
It’s important to track your spending, especially during the holidays. Instead of spending to the limit of your credit card, set a spending limit. You don’t have to spend money for a great gift – sometimes the best presents come from the heart. It’s the thought (not the price) that counts.