According to a recent study conducted by the Certified General Accountants Association of Canada, almost a third of Canadian households do not have enough money left over after paying their bills. On average the 1800+ people who participated in the study were middle-aged, actively employed, and did not believe their incomes kept pace with the cost of living.
With the current low interest rates, consumers have accumulated more than they typically would be able to afford. The number of home equity lines of credit has escalated as well as lines of credit to feed the consumers’ growing appetite for non-essentials such as home improvement projects, car loans and vacations. Meanwhile, two-thirds of households with no wealth accumulation did not expect to get any further ahead in the next three years, the study found. This behavior of consumption, lower interest rates and no wealth accumulation can be a lethal combination.
Instead of using the lower interest rates to pay off their mortgages and other debts sooner, many Canadians are living it up with purchasing goods. The survey found that only 10 per cent of households had refinanced a mortgage to pay it off sooner.
As a result Canadians are accumulating more debt and max their paycheques to pay the bills coming in. When one bill is paid off another purchase is made and the cycle continues.
The banks are only too eager to continue lending to consumers even if they don’t have the means to ensure full payment of the loan – thus adding to the problem. Credit is given on the basis that the minimum monthly payment can be made. If the consumer can pay at least $50 or $100 (the majority of which is mostly interest) of the loan each month, the bank does not care how long it takes to pay the principal back. Even with the minimum payment requirement many consumers become spread themselves too thin and become negligent with repaying loans. What do the banks do to help? Consolidate the debts and tie the combined loan to the consumer’s home. The frequency of debt consolidation loans have increased as a result.
To combat the concerns tied to the over-lending of Banks, Moody’s downgraded all the major banks, with the exception of Royal Bank, back in February 2013. For more about this, please see “Canadian Consumer Debt higher than ever and Banks can share the Blame”.
Are we saving?
The study found Canada’s household savings rate dropped to 3.8 per cent at the end of 1012 from its peak of about 20 per cent in the early 1980s.
With Canadians living paycheque to paycheque there is not enough or very little left over to contribute to any savings account. Unexpected expenses, a change in employment and other changes in lifestyle can greatly affect a person’s ability to contribute to savings.
The report also found that only three in 10 households surveyed believed the accumulation of wealth was a very important personal goal, while half saw it only as a somewhat important pursuit.
Are you living paycheque to paycheque and can’t seem to get ahead with your bill payments? You may be in deeper than you think. Find out what options you have to get out of debt. Stop running in the wheel of endless minimum payments sooner than later. OCCA Consumer Debt Relief has been helping Canadians for over a decade. Find out how we can help you and your family.
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