With today’s high debt loads Canadian consumers are making living with debt a way of life. Banks are now used to lending money at low interest rates and credit card companies are used to consumers making minimum payment on debts. Canadians may be tired of hearing the threat of an impending interest rate increase. I know we have harped on about this in many past articles.
Sure the message has not changed about debt. Living with too much debt and spending beyond your means is still bad and dangerous. In the years the Bank of Canada has warned Canadians to be in more control of their spending and creditors to be more responsible with lending, delinquency rates on lines of credit, loans and credit cards have been falling. The number of mortgages in default or in arrears has also been declining. We are heading in the right direction.
The chief economist at CIBC World Markets, Avery Shenfeld, said recently, “Debt is Not a Four-Letter Word. There is no reason to raise alarm bells over household debt.”
See more on how “Debt is a Four-Letter Word”.
Even with the most recent polled average debt-to-income ratio at 164 per cent, Mr.Shenfeld is not all that concerned about Canada’s debt levels because he states the debts are held by people who can afford to pay them off. Seemingly, Canadians are able to pay off their debts with ease for the most part….or at least affording to make the minimum payments each month.
This can be demonstrated by Canada’s debt-service ratio, which measures how much of our disposable income is put towards interest on mortgages, lines of credit and other debts. Statistics Canada has shown the debt-service ratio in the fourth quarter of last year was 7.1 per cent which is the lowest level since 1990.
For the average consumer living with certain kinds of debt is unavoidable. That is mortgage debt, student debt and yes, even debt from credit cards and lines of credit. Everyone wants to have a piece of the dream that shows you’re doing ok and enjoying life as best you can. Some people are even comfortable taking their time repaying their debts by only making minimum payments. They’d rather pool as little as they can to paying off their debt so they are still able to afford other things each month. This is the norm for many Canadians I believe. So for them, living with debt is ok….as long as they can still afford to make payments on their debts!
On the flip side, membership to OCCA Consumer Debt Relief’s program continues to increase with people who simply cannot afford to live with their debts any longer. Whether they lost income, have recently divorced or were forced to stop working due to illness, there are too many people to count that just can’t get ahead or even get by with their current financial situation. They were the ones living with debt for years, making minimum payments each month until those payments just squeezed them too tight. For this group of consumers, living with their debts became too difficult to live with.
So what’s the message to Canadians living with debt? Continue on and as long as you maintain your income level and make those minimum payments you’ll be ok? Or should it be stop borrowing, live within your means and don’t buy what you can’t afford?
Or is it a combination of both? The key message is to be in control. Build that emergency savings account, enjoy a splurge now and then, keep track of your spending and maintain that income!.
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